Thu Sep 16, 2004

NEW YORK (Reuters) - Treasuries prices hesitated either side of unchanged on Thursday after a key reading on U.S. inflation proved benign, but did nothing to change expectations for an interest rate hike next week.

The consumer price index rose 0.1 percent in August, exactly as forecast. The core measure excluding food and energy also rose 0.1 percent, but that was half the gain analysts had expected. The annual rate of core inflation slowed to 1.7 percent from 1.8 percent, leaving it well within the Federal Reserve's presumed 1-2 percent comfort zone.

Also out were initial jobless claims which rose 16,000 to 333,000 last week. That was a little less than forecast but the data have been so distorted by weather and seasonal factors recently that they have lost much of their predictive power for the labor market.

Still, the figures did nothing to temper market expectations that the Fed will raise rates at its meeting next week, and probably once more before year-end. Treasuries were thus left deadlocked with the benchmark 10-year note (US10YT=RR: Quote, Profile, Research) steady at 4.16 percent.

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