By Richard Leong

NEW YORK, Feb 5 (Reuters) - U.S. Treasuries prices fell on

Tuesday after less worrisome data on European business activity

in 10 months raised hopes of an economic recovery in the region,

stoking selling of safe-haven government debt.

The market sell-off was also spurred by lower yields on

Italian and Spanish sovereign debt after they jumped on Monday

on worries about possible major political shake-ups in euro

zone's third and fourth biggest economies.

Another factor exacerbating the weakness in Treasuries

prices was a revived reduction of long-dated hedges on debt

securities known as power reverse dual currency notes.

Long-dated yields have risen recently as dealers have been

unwinding hedges on these 'exotic' products due to weakness in

the Japanese yen against the dollar, traders and analysts said.

'The key in the near term is the movement in Spanish and

Italian yields. We are seeing a small reversal after Monday's

move. We are seeing Treasuries yields rising in response,' said

Brian Reynolds, chief market strategist at Rosenblatt Securities

in New York.

Benchmark 10-year Treasuries notes were 15/32 in

price at 96-19/32, yielding 2.011 percent, up 5.4 basis points

from late on Monday when the 10-year yield hit 2.059 percent,

the highest level in more than nine months.

The 30-year bond were 27/32 lower in price at

91-8/32 for a yield of 3.208 percent, up 4.6 basis points from

Monday's close.

The weakness in Treasuries stemmed from a partial recovery

in Italian and Spanish government debt when investors sold them

on corruption allegations of Spanish Prime Minister Mariano

Rajoy's government and growing chances that former Italian prime

minister Silvio Berlusconi might regain office.

The yield on 10-year Spanish government notes

fell from a six-week high to 5.37 percent, down 6 basis points

from Monday's close, while the yield on Italian sovereign debt slipped to 4.43 percent, down 4 basis points from

late on Monday.

Concerns about euro zone's political developments and their

implications on the region's handling of its fiscal crisis

coincided with some signs that the euro zone's economy may be

turning the corner.

Earlier Tuesday, Markit's Eurozone Composite PMI, based on

business activity across thousands of companies, and a good

gauge of economic growth, rose in January to a 10-month high of

48.6 from 47.2 in December - an improvement on the preliminary

reading of 48.2.

The Institute for Supply Management will release its January

figures on the U.S. services sector at 10 a.m. (1500 GMT).

Economists forecast the ISM non-manufacturing index likely

decline to 55.2 points in January from 55.7 in December.

On the supply front, the U.S. Federal Reserve will buy $1.25

billion to $1.75 billion in Treasuries that mature between Feb.

2036 and Nov. 2042 at 11 a.m. (1600 GMT), which is part of its

$44 billion purchase of Treasuries in February.

The U.S. Treasury Department will sell at 11:30 a.m. (1630

GMT) $45 billion in one-month bills, which is the

a record amount for this maturity.

(Reporting by Richard Leong; Editing by Grant McCool)

((richard.leong@thomsonreuters.com)(+1 646 303 6313)(Reuters

Messaging:

richard.leong.thomsonreuters.com@thomsonreuters.net)(Twitter

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(-------MARKET SNAPSHOT AT 9:32 a.m. EST (1432 GMT)------- March T-Bond 143 (-15/32) March 10-Year note 131-08/32 (-08/32) Change vs Current Nyk yield Three-month bills 0.075 (+0.02) 0.076 Six-month bills 0.11 (+0.00) 0.111 Two-year note 99-31/32 (-01/32) 0.262 Five-year note 100-01/32 (-05/32) 0.870 10-year note 96-21/32 (-13/32) 2.003 30-year bond 91-12/32 (-23/32) 3.201 DOLLAR SWAP SPREADS LAST Change U.S. 2-year dollar swap spread 17.00 (+0.25) U.S. 3-year dollar swap spread 18.00 (+0.50) U.S. 5-year dollar swap spread 16.25 (+0.25) U.S. 10-year dollar swap spread 9.25 (+0.50) U.S. 30-year dollar swap spread -15.25 (+0.75))

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