* Talk of Western strike in Syria spurs safety bid
* Treasury sells two-year notes at high yield of 0.386 pct
By Ellen Freilich and Luciana Lopez
NEW YORK, Aug 27 (Reuters) - Prices for U.S. Treasuries rose on Tuesday in safe haven bidding after reports that Western forces could attack Syria within days prompted nervous investors to dump riskier assets.
Global stocks also slumped on those fears, with investors instead opting for the safety of U.S. government debt.
“The concerns about a potential escalation in Syria have led to a risk-off move across the board and high-rated bonds like Treasuries have benefited from the flight to quality,” said Jake Lowery, a Treasury trader at ING Investment Management.
Participants at a meeting in Istanbul told Reuters that U.S. and other diplomats warned Syrian opposition leaders on Monday to expect action that would punish Syrian President Bashar al-Assad for poison gas attacks - and to be ready to negotiate if his government sues for peace.
The news about Syria overshadowed economic indicators that might normally have carried more weight, such as a rise in the German business confidence index. That more typically would have hurt Treasuries and whetted risk appetite.
The S&P/Case-Shiller index showing home prices rose in June also had little impact, but bonds briefly trimmed gains after a stronger-than-forecast reading on consumer confidence.
“Generally, the economic picture in developed markets is one of positive surprises,” Lowery said. “There’s a reasonable outlook for the next U.S. payrolls report, and a high probability of the Fed announcing some asset purchase tapering at their September policy meeting.”
“With that backdrop, the economic and monetary picture is not the cause for today’s rally. It’s the geopolitical risk related to Syria that is causing a flight to quality.”
On Tuesday, prices on the benchmark 10-year Treasury note rose 20/32, with their yields easing to 2.714 percent from 2.787 percent late on Monday.
Treasuries yields recently touched two-year highs after data suggested the world’s biggest economy was ready for the Fed to back off its stimulus program, perhaps as soon as the central bank’s upcoming policy meeting on Sept. 17-18.
But yields have eased as fresh data has painted more of a mixed picture.
Investors are now eyeing August nonfarm payrolls data, due Sept. 6, as the next data milestone before the Fed’s meeting next month.
The Treasury this week is auctioning $98 billion in new two-, five- and seven-year debt. Those sales kicked off on Tuesday with a $34 billion auction of two-year notes at a high yield of 0.386 percent.
“The geopolitical risk associated with the tensions in Syria combined with a low dealer takedown suggest that more buyers will be coming into the market,” said Thomas Simons, money market economist at Jefferies & Co.
As part of its ongoing efforts to stimulate economic growth and cut unemployment, the Federal Reserve purchased $5.18 billion in Treasury coupons on Tuesday.