Jan. 6 (Bloomberg) -- Treasuries may gain in Asian trading, driving 10-year yields down from a one-month high, on speculation central banks in the region will buy U.S. debt with the dollars purchased from selling their own currencies.

``Asian central banks have no choice but to continue to buy dollars and invest the proceeds in Treasury securities,'' David Goldman, head of debt research at Banc of America Securities LLC in New York, said in a note to investors. Banc of America is a primary government securities dealer, one of 22 such firms that deal directly with the Federal Reserve.

The benchmark 4 1/4 percent note due in November 2013 gained 3/32, or 94 cents per $1,000 face amount, to 99 2/32 at 11:55 a.m. in Tokyo. The yield fell 2 basis points, or 0.02 percentage point, to 4.36 percent, after yesterday rising as high as 4.42 percent.

The odds the Bank of Japan will sell yen increased after Japan's currency strengthened to 106.06 to the dollar yesterday, the most since September 2000. The central bank yesterday sold its currency in both Tokyo and London, said traders that deal with the central bank.

Treasury holdings by the Fed on behalf of foreign official institutions rose for a ninth week to a record daily average of $855.9 billion in the week to Dec. 31.

`Determination'

Japan, the biggest overseas holder of Treasuries, spent a record 20.1 trillion yen ($189 billion) in the year to Dec. 26 to stem the yen's gains because a stronger local currency cuts the value of exporters' overseas sales when earnings are switched to yen.

``We will act as needed to counter speculative movement,'' in the yen, Zembei Mizoguchi, Japan's vice finance minister for international affairs, told reporters. ``There is a need for us to respond to this with determination.''

The central-bank purchases may stop Treasury yields from rising too quickly as some investors favor riskier assets such as stocks on signs the economy is strengthening. After falling from as high as 4.66 percent on Aug. 14, the 10-year note yield has stayed below 4.5 percent.

Service industries probably expanded for a ninth month in December, the Institute for Supply Management is expected to report today. Recent reports have also shown gains for manufacturing and employment, pushing up the three major U.S. stock measures more than 1 percent yesterday.

`Dislike'

``We dislike government bonds, and in particular the U.S.,'' Michael Strobaek, chief investment officer in Europe for UBS Global Asset Management, told Bloomberg News in a television interview. The fund management unit of UBS AG, the world's largest fund manager with $1.5 trillion under investment, is favoring equities, Zurich-based Strobaek said.

ISM's index of non-manufacturing activity probably gained to 61 last month, from 60.1 in November, according to the median forecast of 46 economists surveyed by Bloomberg News.

Treasuries on Friday had the biggest decline in three months after ISM said its factory index rose to a two-decade high last month. This Friday, the Labor Department will probably say the economy created 150,000 non-farm jobs in December, from 57,000 the month before, according to the median forecast of 57 economists.

The Treasury will tomorrow sell $16 billion of five-year notes, and on Thursday $12 billion of 10-year Treasury Inflation Protected Securities, or TIPS, to help fund a record budget deficit. The Bush administration forecasts the shortfall will swell to $475 billion in the fiscal year to Oct. 1.

Asian central-bank purchases may help the Treasury to sell more notes, some investors said.

``Foreigners supporting the deficit remains a big issue,'' said Thomas Silvia, who helps manage $114 billion of debt in Boston at Fidelity Investments, the biggest U.S. mutual fund company. ``It's too significant an amount of money.''

Last Updated: January 5, 2004 22:12 EST