TOKYO, May 9: US treasuries extended their gains in Tokyo afternoon trade on Friday, buoyed by continued dealer-led short-covering after sentiment brightened in response to comments by US Fed chairman Alan Greenspan.

Active buying in short-term treasuries and the upward trend in Eurodollar futures on SIMEX contributed to the overall bullish mood. Japanese operators were seen buying short-term Treasuries, while Japanese pension funds and institutional trusts were seen selling, reflecting the dollar's fall. The key 6-5/8 percent 30 year bond stood at 96-15/32, yielding 6.91 percent, compared with 96-3/32 in New York. Cash and futures prices fell rapidly in morning trade on sales by dealers from New York shortly after Greenspan commented that the Fed would need to act if economic growth failed to slow down as expected. "Should the expected slowing in the growth of demand fail to materialise, we would need to address any emerging pressures in product and credit markets," Greenspan said in a speech for delivery to New York University's Stern School of Business. But the declines were short-lived, with the key bond price quickly recovering from a low of about 96 on bargain-hunting by Japanese operators, traders said.

Traders said that follow-through sales were limited as Greenspan's remarks were generally in line with recent comments and did not give the impression that the Fed was alarmed about current economic fundamentals.

"Today's rise was much bigger than expected," a Japanese bank trader said. "Sentiment looks strong after (the market) climbed even further from (Thursday's) New York levels, but we have to see whether this mood will continue tonight."

In New York on Thursday, treasuries recovered after speculative players went bargain hunting and intraday shorts ran for cover, New York dealers said. "Although speculation on credit tightening still lingers strongly in the market, very few people now believe that the Fed would tighten extensively, even if it raises the Fed funds rate once again in May," a brokerage trader said. "Such a mood is keeping prices generally supported." The June T-bond futures contract rose 9/32 from the previous close and stood near the day's high of 110-3/32 in afternoon trade.

It fell as low as 109-16/32 earlier.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.