Treasuries rise after India blasts, US budget view

NEW YORK, July 11 (Reuters) U.S. Treasury debt prices rose on Tuesday, extending earlier gains, on buying apparently spurred by news of blasts hitting commuter trains outside the city of Mumbai in India.

''It may be generating a safe haven bid,'' John Canavan, analyst at Stone and McCarthy Research Associates in Princeton, New Jersey, said of the the explosions which hit packed commuter trains in India. For details see ID:nSP141887.

Prior to reports of the blasts, the Treasuries market was supported by investors shifting money into bonds from stocks on worries about future stock performance and news of the White House reducing its fiscal 2006 budget deficit forecast.

The Bush Administration slashed this year's budget gap by 7 billion to 6 billion on stronger-than-expected tax receipts in the first half of the year. Higher tax revenues will likely cut the government's need to issue more debt.

Late Monday, the second-quarter earnings reporting season kicked off on a negative note when bellwether Alcoa Inc.'s second-quarter revenues fell short of expectations and communications equipment maker Lucent Technologies Inc. warned of lower third-quarter profits.

Until a wave of upbeat earnings news emerges, investors are favoring Treasuries which are offering a solid 5 percent yield over stocks, David Goldman, head of fixed-income research at Cantor Fitzgerald in New York.

''It's hard to suppress the demand for Treasuries when they are above 5 percent,'' Goldman said.

Two-year Treasury notes US2YT=RR were unchanged in price to yield 5.17 percent, while benchmark 10-year notes US10YT=RR were up 6/32 in price to yield 5.11 percent, down 2 basis points from late Monday.

The yield inversion or premium on two-year yields over 10-year yields grew to 6.6 basis points, its widest level since early March.

Also, Treasury note and bond yields have remained below the Federal Reserve's current rate federal funds target of 5.25 percent. The Fed has raised the overnight rate 17 times since June 2004 in a bid to curb inflation.

U.S. rate futures signaled about a 67 percent chance that the Fed will raise rates by a quarter percentage point at its August policy meeting.

The Treasuries market will be void of top-tier U.S.

economic indicators for a second day, as traders await for official retails sales data in June and early July readings on consumer sentiments from the University of Michigan at the end of the week, analysts said.

Traders received weekly updates on retail sales on Tuesday.

The International Council of Shopping Centers and Redbook Research said U.S. chain store sales rose by 3.0 percent and 3.5 percent, respectively, last week from the comparable week a year earlier.

Treasury trading volume has been light. On Monday, about 4 billion worth of U.S. government debt changed hands, 40 percent below its 20-day moving average, according to bond broker ICAP.

Separately, the Bank of Canada as expected held official interest rates steady at 4.25 percent and offered no hints of policy tightening in the coming months.

REUTERS SBA HS2008