TREASURIES-Bond prices fall on improved labor market view

* Drop in U.S. jobless claims brightens job market outlook

* Stock rally lures investors from safe-haven debt

* Focus on U.S. employment report due Friday

* Fed bought $7.24 bln in coupons 5/15/18 to 02/15/21

* Treasury to sell 3-, 10-, 30-year securities next week

By Ellen Freilich

NEW YORK, March 3 (Reuters) – U.S. Treasuries fell on
Thursday as jobless claims data raised expectations of an
improving labor market in coming months, driving a stock rally
that drew investors out of safe-haven government debt.

New claims for jobless benefits fell to a more than
2-1/2-year low of 368,000 last week, a level typically
associated with faster job creation. A decline in oil prices
also drove investors’ risk appetite.

“The risk trade is back on, and bonds are focused on the
economy’s fundamentals,” said Jason Weiner, portfolio manager
of the Marshall Aggregate Bond Fund in Atlanta, Georgia.

“The claims data was very strong and supplanted fears about
the Middle East and oil prices,” he said.

The jobless claims data comes a day ahead of the U.S.
government’s closely watched monthly payrolls report.

Technicals reinforced the move because stocks were
“oversold” and bonds “overbought” at the end of February,
Weiner added.

The U.S. 10-year note yield (US10YT=RR: Quote, Profile, Research) hovered at support
at 3.56 percent while the five-year note (US5YT=RR: Quote, Profile, Research) yield moved
through support at 2.26 percent to 2.29 percent.

“Longer-term Treasury yields will move higher because
fundamentals support the idea of 4 percent GDP growth in 2011,
and that should push bond yields higher, maybe a percent or
more higher on the 10-year note yield,” Weiner said.

David Ader, head of government bond strategy at CRT Capital
Group in Stamford, Connecticut, said the bond market focused on
“the consistency with which the labor market is improving
across many, if not most measures.

“This raises the stakes for a big gain…sometime…in the
monthly (U.S. non-farm payrolls) series.”

The median forecast of a Reuters poll is for U.S. non-farm
payroll growth of 185,000 in February, up from 36,000 new jobs
in January.

The Institute for Supply Management’s non-manufacturing
index released on Thursday showed that sector of the U.S.
economy expanded in February.

The market focused on the report’s employment index, which,
according to Goldman Sachs economists, suggested that labor
market fundamentals “continue to improve.

“We continue to see some upside risk to our 200,000
forecast for the increase in nonfarm payrolls in tomorrow’s
employment report,” the Goldman economists said.

With the weekly unemployment claims “diving lower, there
must be a lot of new jobs getting created out there and payroll
jobs are the one number that can really turn the markets upside
down and spin expectations 180 degrees,” said Chris Rupkey,
chief financial economist at Bank of Tokyo/Mitsubishi UFJ.

January payroll growth was hurt by snowstorms, and the
market is bracing for a “well-advertised big jump in payroll
jobs in February,” Rupkey added, noting that job growth totaled
705,000 the month after the blizzard of 1996.

“A 300,000 monthly payroll jobs number is not impossible
tomorrow,” he said.

The New York Fed bought $7.240 billion in Treasury coupons
with maturities ranging from May 15, 2018, to Feb. 15, 2021, as
part of its ongoing program to spur economic growth.

The U.S. Treasury said it would sell $32 billion in
three-year notes, $21 billion in nine-year 11-month notes, and
$13 billion in 29-year 11-month bonds on Tuesday, Wednesday and
Thursday of the coming week.

Prices of two-year notes (US2YT=RR: Quote, Profile, Research) fell 3/32, their yields
rising to 0.75 percent from at 0.70 percent on Wednesday.
(Editing by Leslie Adler)