* Talk of Western strike in Syria supports safety bid
* Treasury to sell two-year notes at 1 p.m. (1700 GMT
* Yields have eased on weak July home sales, durable goods orders
By Ellen Freilich
NEW YORK, Aug 27 (Reuters) - Prices of U.S. Treasuries rose on Tuesday after Western powers told Syrian opposition that a strike against President Bashad al-Assad’s forces could occur within days, according to sources, spurring buying of safe-haven U.S. government debt.
Stock losses, also in reaction to talk of a Western strike in Syria, whetted investors’ appetite for Treasuries.
“Concerns about the Syrian conflict have sparked a renewed flight to quality bid,” said William O‘Donnell, head Treasury strategist at RBS Securities in Stamford, Connecticut.
U.S. allies were drafting plans for air strikes and other military action against Syria on Tuesday, as Assad’s enemies vowed to punish a poison gas attack that Washington called a “moral obscenity.” Meanwhile, U.N. experts trying to establish what killed hundreds of civilians in rebel-held suburbs of Damascus last Wednesday crossed the frontline on Monday to see survivors.
The talk of an attack on Syria “pressured stocks while putting a bid in safe-haven markets,” O‘Donnell said, noting that the yen, oil and gold rose along with Treasuries.
A rise in the German business confidence index, which normally would have been positive for stocks and negative for Treasuries, was largely ignored in light of the dominant concerns about Syria, traders said.
Similarly, a weekly report showing U.S. chain store sales rose 3.8 percent last week - but were up 0.3 percent in August to date versus July - had little discernible impact.
The S&P/Case-Shiller index showing home prices rose in June also had little impact on bond prices.
In the previous two trading sessions, weakness in July data on new home sales and durable goods orders, respectively, pushed bond prices up and allowed yields to ease.
On Tuesday, 10-year Treasury note prices rose 10/32, their yields easing to 2.76 percent from 2.79 percent late on Monday.
Treasuries yields reached two-year highs recently after data suggested the world’s biggest economy was ready for the Fed to back off its stimulus program, perhaps as soon as the bank’s upcoming policy meeting on Sept. 17-18.
But yields have eased as fresh data paints a mixed picture.
Treasury auctions of $98 billion in new two-, five- and seven-year debt this week could keep yields from falling further. Those sales kick off on Tuesday with a $34 billion auction of two-year notes. The Treasury will also sell $25 billion in 14-day cash-management bills on Tuesday.
But Justin Lederer, Treasury strategist at Cantor, Fitzgerald, said news about Syria would remain “front and center” for the market “for the remainder of the day and the forseeable future.”