LONDON, Aug 12: US Treasuries clung to firmer levels in London on Tuesday, nervously awaiting key data on Wednesday that may re-establish the upward trend in yields, analysts said.

Traders said the European session featured some short-covering after overnight comments by Federal Reserve governor Susan Phillips that downplayed the risk of a credit tightening.

"Going into the retail sales numbers tomorrow the market can squeeze up a little bit more," said one trader. But UK inflation data and the Bundesbank's decision to keep its repo rate unchanged had stolen the focus in early trade.

Economists said Wednesday's US July retail sales figure was expected to be strong after a second quarter lull. This could point to a possible Fed hike in September.

"We are going for a 1.0 percent rise, and that's on top of the 0.5 percent rise we had in June," said Ian Morris, international economist at HSBC James Capel in London.

"That's going to scare the market. If anything we would say that there was upside surprise on that retail sales," he added.

By 10:00 GMT, the 30-year bond was quoted at 96-21 and yielding 6.63 percent compared with 96-20 in Tokyo and 96-18 in New York. The 10-year note stood at 98-12 against 98-10 in Tokyo and 98-07 in New York.

September T-bond futures were up 4/32 on the day at 112-28 in automated trade.

A Reuters poll of economists suggested a rise of 0.7 percent in the headline retail sales and 0.5 percent ex-autos.

"If it's a bad number the market is already set up for that," said the trader.

But Morris said the run of US data would remain strong in the next two months, pushing up long bond yields to about 6.8 percent.

"It's not so much the bounce back story itself because everyone knows it's happening, it's the extent to which the pace of growth accelerates," Morris said. Data due on Tuesday included US second quarter productivity and unit labour costs, both expected at 14:00 GMT. The weekly Redbook survey was due at 18:55 GMT.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.