LONDON, July 29: US T-bonds were looking to the crucial employment cost data due later on Tuesday for inspiration to resurface above the 115-23 peak, analysts said. But failure to conquer the 115-23/29 resistance zone, which is also marked by a retracement level, or a disappointing US Employment Cost Index (ECI) for the second quarter, could give the bears' the upper hand, they said.

"The market is capable of breaking either way," said Tom Hobson, director of technical analysis at Merrill Lynch in London. "The overextended nature (of the rally) demands higher prices over the next two sessions, otherwise you'll see some bullish fatigue," he added.

By 09:45 GMT, September T-bonds were quoted 5/32 higher at115-19 in automated trade, extending New York's climb on Monday which was helped by a report showing the Treasury plans to borrow just $10 billion in the third quarter, half of most forecasts. Hobson said the directional tone was positive.

"We're going to maintain a cautiously positive outlook and look to buy closer to the bottom and buy a break out over the top," he said.But a slide below 114-30, which is near the lows in the past two sessions, could reverse the outlook.

"If the market doesn't go higher by tomorrow, or if it breaks below 114-30 today, we would start looking at putting more defensive strategies on," said Hobson, adding September could trade down 114-00 and then 113-16 in the coming weeks.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.