* Benchmark 10-year yield touches three-month low
* Yuan at four-year low, China fuels fear of currency war
* Traders pull back bets on Sept Fed rate hike (Adds job openings data, latest prices)
By Michael Connor
NEW YORK, Aug 12 (Reuters) - U.S. Treasury debt prices rose on Wednesday, with yields on benchmark 10-year notes brushing a three-month low as China shook world markets for a second day by allowing the value of the yuan to move lower.
Wednesday's declines came after China on Tuesday devalued its daily reference rate for the currency and took the yuan to a four-year low. The unexpected actions fueled fears of currency wars, knocked down stock markets and encouraged buying of top-quality government debt.
Yields on 2-year German debt went to a new low of minus 0.29 percent, while Wall Street was off more than 1 percent in mid-session trading. The MSCI world equity index declined 1.28 percent.
"China has been lingering as a problem and has now broken the camel's back," said analyst Justin Lederer at Cantor Fitzgerald in New York. "People will be keeping a closer eye on every move in China, in the currency, in all their data."
Analysts said the possible effect on the world economy from China's economic struggles, including a big drop in exports, may delay interest rate hikes by Federal Reserve policymakers.
Short-term U.S. interest rates markets signaled traders see no more than a 40 percent chance the U.S. central bank would raise rates at its Sept. 16-17 meeting. That compares to Friday, after a solid July jobs report, when traders had priced in just above a 50 percent probability.
The 10-year U.S. Treasury yield early on Wednesday fell as low as 2.045 percent, the lowest since early May and below its 200-day moving average.
Prices for the 10-year note gained as traders readied for a $24 billion auction of the maturity later on Wednesday. It was last yielding 2.0893 percent, reflecting a price gain of 13/32.
The 30-year Treasury was last up 20/32 and yielding 2.7774 percent, the lowest since April 29.
Prices were also helped by government data showing U.S. job openings had declined 2 percent in June from a record high in May.
The 10-year's low market yields may dull demand at the U.S. Treasury auction, analysts said, but the sale should go well since U.S. interest rates are substantially higher than comparable rates in other major economies.
"The comparative yield between the U.S. and developed market peers has long given foreign bidders good reason to own a U.S. interest rate," BMO analyst Neil Bouhan told clients. (Additional Reporting By Richard Leong in New York; Editing by Nick Zieminski and Meredith Mazzilli)