Bonds rise on job data, auction demand

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NEW YORK (Reuters) -- U.S. Treasurys rose Thursday, as benchmark yields touched their lowest levels in four weeks following strong demand in an auction of new seven-year notes and as an unexpected jump in jobless claims revived economic worries.

The auction of $27 billion of the notes rounded out this week's record sales of $104 billion of Treasury coupons. All three of the week's auctions were met with above-average demand, alleviating some fears that global investors might be losing their appetite for U.S. government debt.

The jump in prices "comes on the heels of three straight strong Treasury auctions -- the continued strength throughout the week ... is leading to more people piling into the trade," said Dan Greenhaus, analyst at Miller Tabak & Co. in New York.

U.S. benchmark 10-year Treasury notes traded 1-7/32 higher in price for a yield of 3.53%, the lowest since early June and down from 3.69% late Wednesday.

Thursday's move marked the biggest single-day dip in yields since March 18, when the Fed announced its intention to buy longer-dated Treasurys.

The Fed purchased about $3.25 billion of Treasurys Thursday. So far, the central bank has bought about $181 billion of the $300 billion of government debt they pledged to purchase over a six-month period.

The bullish tone in bonds was set early in the day after a rise in weekly jobless claims fanned worries about the economy and bolstered expectations the Federal Reserve will need to keep interest rates near zero for the foreseeable future.

The U.S. Labor Department reported first-time filings for jobless benefits climbed to 627,000 in the week ended June 20, from an upwardly revised 612,000 in the previous week. Analysts had forecast a reading of 600,000.

Adding to expectations the Fed will not be raising rates anytime soon was the announcement from the central bank Thursday that it will extend a number of emergency funding facilities and a foreign exchange program with central banks worldwide that is designed to support lending.

"The Federal Reserve Board's decision to extend several liquidity facilities through February 1, 2010 raises the hurdles against rate hikes before that date even further," said Jan Hatzius, chief U.S. economist at Goldman Sachs in New York.

The government's upward revision of its reading on first-quarter gross domestic product Thursday was not enough to take away the sting of the latest jobless report. The jobless data had driven Wall Street lower at the opening, but U.S. stock markets rebounded to close higher.

Two-year Treasury notes traded 5/32 higher in price for a yield of 1.13 %, down from 1.21 % late Wednesday, while the 30-year bond traded 1-26/32 higher in price for a yield of 4.32% from 4.43%.