TREASURIES-Yields rise as BoE holds rates, stronger U.S. inflation

* Bank of England surprises with no rate cut

* US data shows faster inflation, improving labor market

By Karen Brettell

NEW YORK, July 14 (Reuters) - U.S (Other OTC: UBGXF - news) . Treasuries weakened on

Thursday after the Bank of England kept interest rates

unchanged, surprising investors who had expected the first rate

cut in more than seven years, and as U.S. data showed rising

inflation.

Expectations of more stimulus from international central

banks has improved risk appetite in the past week, helping

propel U.S. stocks to records.

U.S. bonds have also benefited from falling yields globally

as investors turn to longer-dated Treasuries to generate yield,

even as safety buying from Britain's decision to leave the

European Union fades.

The Bank of England held interest rates steady but said it

was likely to deliver stimulus in three weeks' time, possibly as

a "package of measures."

"There was some disappointment from the lack of a rate cut

from the Brits," said Charles Comiskey, head of Treasuries

trading at Bank of Nova Scotia (Other OTC: BKSHF - news) in New York.

At the same time, an improving U.S. economic picture has

raised expectations that the Federal Reserve may raise rates

again later this year, making it difficult to justify yields

that are still holding near record lows.

U.S. data on Thursday showed that U.S. producer prices

recorded their biggest gain in a year in June.

The number of Americans filing for unemployment benefits

unexpectedly also held at lower levels last week, pointing to

further momentum in the labor market after job growth surged in

June.

Benchmark 10-year notes were last down 22/32 in

price to yield 1.542 percent, up from 1.467 percent on

Wednesday.

The notes hit record low yields of 1.321 percent last week

on concerns about slowing global growth, which were accelerated

by Britain's vote to depart the EU.

Some profit taking from the recent rally was also seen

weighing on Treasuries on Thursday, with the market continuing

to absorb $56 billion in new coupon-bearing supply this week.

"After all the auctions the market is repricing itself a

little bit," Comiskey said.

Markets were also whipsawed on Thursday by speculation over

whether Japan will adopt new stimulus measures to stave off

deflation.

Bloomberg reported that ex-Federal Reserve chief

Ben Bernanke raised the idea of the Japanese government selling

perpetual bonds to the Bank of Japan, in a meeting with one of

Prime Minister Shinzo Abe's key advisors.

Government and central bank officials directly involved in

policymaking told Reuters that there is no chance that Japan

will adopt this plan any time soon.

(Editing by W Simon)