* Jobless claims drop to lowest level in nearly 5-1/2 years
* Focus on U.S. Treasury's $16 billion 30-yr bond auction
By Ellen Freilich
NEW YORK, May 9 (Reuters) - U.S. Treasuries prices rose
slightly on Thursday as yields stood near the upper end of their
recent ranges, but the session's best gains were erased after
the government said the number of Americans filing new claims
for unemployment insurance benefits fell to the lowest level in
nearly 5-1/2 years.
Recent labor market data, including the latest drop in new
jobless claims, to the extent it argues against an economic
slowdown, would tend to reduce demand for safe-haven U.S. debt.
But remaining uncertainties in the United States, along with
concerns about slower global growth, have prevented a pronounced
sell-off in Treasuries. Instead, Treasuries trading with yields
near the upper end of their recent ranges, have drawn buyers.
The 30-year bond, up 18/32 before the data, was
up 11/32 soon afterwards. It then conceded more ground as
traders set up for the 30-year Treasury bond auction at 1 p.m.
EDT (1700 GMT), allowing its yield to rise to 2.99 percent.
The benchmark 10-year note yield rose to 1.81
percent from 1.798 percent late on Thursday.
Initial claims for state unemployment benefits fell 4,000 to
a seasonally adjusted 323,000, the lowest level since January
2008. Economists polled by Reuters had expected
first-time applications to rise to 335,000 last week.
The third straight weekly decline in claims pushed them
further below the 350,000 mark, which economists normally
associate with a firming labor market.
"The data signals fewer layoffs in April, a quicker pace of
labor market recovery, and a lower national unemployment rate,"
said Stone & McCarthy Research Associates economic analyst Doug
Brain in Princeton, New Jersey.
Traders cited buying overnight and early this morning from
overseas as a main driver for lifting Treasuries in early trade.
"These levels - 1.80 percent on 10-year yields and 3 percent
on long bonds once again proved to be attractive in a low-rate,
tight-range environment," said Cantor Fitzgerald Treasury
strategist Justin Lederer in New York.
Comments from Bundesbank chief Jens Weidmann that the
European Central Bank is still able to take policy action to
address the euro zone crisis even after cutting its main
interest rate last week also got a bit of attention.
Weidmann, also a member of the ECB governing council, told
the Westdeutsche Allgemeine Zeitung: "Monetary policy is still
capable of action. There is no doubt that we must keep an eye on
the risks of negative real interest rates."
After the U.S. jobless claims report, the market's focus
shifted to setting up for the Treasury's sale of 30-year bonds
at 1 p.m. EDT (1700 GMT) and some more early gains were conceded
in the process of setting up for that sale.
Bond auctions "are always tricky," Lederer said.
"Many will be cautious with their setups given the
continuous unknown bidder participation percentages and the
question as to whether we can get to that 'magical' 3 percent
yield," he said.
But he said current yields around 3 percent would likely
attract an array of investors "while others will also look to
purchase the issue on the curve."