TREASURIES-U.S. bond prices rise as services data disappoints

* Fed restarts QE3 with planned $1.0 bln-$1.5 bln bond buys

* U.S. ISM services index unexpectedly falls, factory orders

rise

* Bond gains curbed by coming government, corporate supply

* U.S. Senate seen confirming Yellen as Fed chair

By Richard Leong

NEW YORK (Frankfurt: HX6.F - news) , Jan 6 (Reuters) - U.S. Treasuries prices rose on

Monday after weaker-than-expected data on the U.S. services

sector raised hopes that the Federal Reserve would slow its

reduction of bond purchases, spurring bids for government debt.

U.S. yields retreated from their 2-1/2 year highs, but they

could resume their rise on further proof that the domestic labor

market is creating jobs at about a monthly clip of about

200,000, analysts said. If employers were to hire workers at

that pace in December, it would support the view that the Fed

will keep dialing back its third round of quantitative easing

this year.

"We had a run of stronger-than-expected data in December

that pushed the 10-year yield above 3 percent. We are now seeing

some weaker data so we are seeing it falling below 3 percent,"

said Stan Shipley, bond strategist at ISI Group in New York.

On Dec. 18, Fed policy-makers said the central bank will buy

$75 billion in Treasuries and mortgage-backed securities in

January - a reduction of $10 billion in its monthly purchases -

on evidence of an improving economy.

Last Friday, Fed Chairman Ben Bernanke gave an upbeat

outlook on the economy at an event in Philadelphia, but he

cautioned that the recovery "clearly remains incomplete."

Monday's data supported Bernanke's view of the uneven

recovery.

The Institute for Supply Management said its index on

services unexpectedly fell in December, while the Commerce

Department said new orders for factory goods rebounded in

November following a drop in October.

"The number that matters is Friday's payrolls number,"

Shipley said.

Economists polled by Reuters expected U.S. employers

probably added 197,000 jobs last month, compared with 203,000 in

November, while they forecast that the jobless rate held at a

five-year low of 7.0 percent.

The benchmark 10-year U.S. Treasury note rose

8/32 in price to yield 2.965 percent, down 3 basis points from

late on Friday. The 30-year bond shot up 18/32 in

price to yield 3.898 percent, down 3 basis points from Friday.

The 10-year note's yield hit a near 2-1/2-year high of 3.041

percent last Thursday, while the 30-year bond's yield touched

4.001 percent a week ago, which was its highest intraday level

since early August 2011, according to Reuters data.

The U.S. central bank restarted its QE3 program on Monday

after a hiatus during the Christmas and New Year holidays. The

Fed said it planned to buy $1.0 billion to $1.5 billion in bonds

due from February 2036 to November 2043.

In other Fed developments, the U.S. Senate is expected to

confirm Janet Yellen to succeed Ben Bernanke as chair of the

central bank in a vote scheduled late Monday afternoon. If

confirmed, Yellen will be the first woman to serve as the Fed's

top official.

For Wall Street, Yellen's tenure as Fed chief would likely

support the notion that the Fed will stick with an aggressive

stimulus, which has kept interest rates low and stoked the

recovery in the housing and stock markets that were hammered

during the Great Recession.

As the Fed resumed its bond stimulus program, the Treasury

Department will sell $30 billion in three-year debt on Tuesday

; $21 billion in 10-year notes on Wednesday

and $13 billion in 30-year bonds on Thursday

.

Competing for investors' cash will be an expected heavy wave

of investment-grade corporate bonds, which analysts say should

rebound following a poor 2013.

Bond dealers forecast that companies plan to sell $90

billion to $100 billion in high-grade debt in January, according

to IFR, a unit of Thomson Reuters (Frankfurt: TOC.F - news) .