TREASURIES-U.S. bond yields bounce off 3-month lows as rally pauses

* Yields edge up from three-month lows as recent buying

fades

* Data suggest sluggish growth, support view on Fed stimulus

* Investors snap up $7 billion in 30-year TIPS supply

* Fed buys $1.56 billion bonds due 2038-2043

By Karen Brettell and Richard Leong

NEW YORK, Oct (KOSDAQ: 039200.KQ - news) 24 (Reuters) - U.S. Treasuries yields edged up

from three-month lows on Thursday as buying tied to the view the

Federal Reserve will not shrink its bond-purchase program until

next year faded.

The bond market rally paused as benchmark yields struggled

to stay below 2.50 percent since Wednesday.

"That's a pretty big hurdle for the bond market technically.

A lot of the delayed tapering has been priced in," said Anthony

Valeri, fixed income strategist at LPL Financial (NasdaqGS: LPLA - news) in San Diego.

Ten-year Treasury note yield had fallen 11 basis

points the prior two sessions after a government report on

Tuesday showed employers hired fewer workers than expected in

September, stoking fears the economy was slowing even before the

government's 16-day shutdown.

This disruption that stemmed from a Washington budget

impasse, while seen harmful the economy, has spurred the view

the Fed policy-makers will not change its $85 billion monthly

bond purchases in a bid to avoid further damage to the recovery

and investor confidence.

On the other hand, some Fed officials have acknowledged the

declining benefits of ongoing policy and growing risk for the

central bank to hold these bonds for a protracted period.

Still, policy-makers who will meet next week have said

possible changes to its third round of quantitative easing are

very dependent on economic data, though over the coming months

they are likely to be skewed by the effects of the government

shutdown, limiting insight into the actual state of the economy

and to what degree the shutdown and the fight over raising the

debt ceiling may have harmed growth.

"What we've been seeing since the government shutdown and

debt ceiling was resolved is a desire to jump back into

Treasuries," said Jason Rogan, managing director in Treasuries

trading at Guggenheim Partners in New York. "Most market

participants are of the mind that the Fed is on hold for the

foreseeable future."

Global economic indicators pointed to slowing growth on

Thursday. U.S. manufacturing output fell for the first time in

four years while the euro zone economy lost momentum, surveys on

Thursday showed.

Investors will be watching for any new information about Fed

policy when the U.S. central bank meets next Tuesday and

Wednesday, although it is seen as unlikely to reduce its monthly

QE3 bond purchases until March.

"Until we get more information, the market is uncertain

where to go," said Aaron Kohli, interest rate strategist at BNP (Paris: FR0000131104 - news)

Paribas in New York.

Benchmark 10-year Treasuries traded down 8/32 in

price to yield 2.514 percent, up 3 basis points from late on

Wednesday. The 10-year yield fell to a three-month low of 2.471

percent on Wednesday. It has declined from 3.00 percent on Sept.

5, before the Fed surprised investors by keeping the size of its

purchase program unchanged.

Yields have retraced about half of their increase in

reaction to Fed Chairman Ben Bernanke hinting, back in May, the

Fed might reduce its bond purchases by late this year.

The Fed bought $1.56 billion in bonds due from 2038 and 2043

on Thursday as part of its ongoing purchase program.

The government sold $7 billion more of a 30-year TIPS issue

originally issued in February at an auction on Thursday.

The supply fetched the strongest demand in a year, resulting

in a yield of 1.330 percent, roughly 2 basis points below what

traders had expected.

"The Fed is on hold, but it's less likely to affect a

30-year bond," BNP Paribas (Milan: BNP.MI - news) ' Kohli said.

The second reopening of this TIPS issue due in February 2043

enlarged its outstanding amount to $23 billion.

The Treasury said on Thursday it will sell $96 billion in

new coupon-bearing supply next week, including $32 billion in

two-year notes on Monday, $35 billion in five-year notes on

Tuesday and $29 billion in seven-year notes on Wednesday.