March 4 (Bloomberg) -- The 10-year U.S. Treasury note may fall for a fourth day in Asian trading, the longest decline since November, on expectations a report tomorrow will show the economy last month added the most jobs in more than three years.

Employment gains may spark inflation and prompt the Federal Reserve to move closer to raising its key interest rate. The U.S. report will probably show employers added 130,000 workers to their payrolls in February, the biggest increase since November 2000, based on the median estimate of 65 economists surveyed by Bloomberg News.

``Some people have started thinking there will be reasonable numbers on the payrolls,'' said Hidetaka Namiki, head bond trader at Banc of America Securities in Tokyo. Treasuries have declined because of ``the speculation of a rate hike in late September.''

The 4 percent note maturing in February 2014 was little changed at 99 19/32 at 1:20 p.m. in Singapore. The yield was 4.05 percent. It is up from 3.97 percent on Friday. Yields may rise to 4.1 percent in coming weeks, said Namiki, who expects the Fed to leave interest rates unchanged this year.

Companies added 112,000 jobs in January. The last time the economy gained more than 100,000 jobs for two consecutive months was in 2000, when the Fed was raising its key rate.

Fed Policy

Fed policy makers have cited the labor market's performance as one of the main reasons for keeping the target for overnight bank lending at 1 percent since June. Inflation erodes the value of fixed income payments, and the prospect of higher interest rates makes current debt yields less attractive.

The U.S. economy expanded in January and February with moderate employment growth and ``slowly rising'' retail prices, the Fed said yesterday in its latest survey of regional economic conditions, known as the beige book.

The Federal Open Market Committee will use the survey when it meets March 16 to help decide whether to raise its benchmark interest rate. The FOMC has kept the rate at the lowest since July 1958 partly because inflation has been slow and the economy has lost 1 million jobs since the expansion began in November 2001.

``The economy is getting brighter and there will be a gradual improvement in jobs growth,'' said Yasutoshi Nagai, an economist at Daiwa Securities SMBC Co. in Tokyo. ``I see the Fed hiking rates in September.''

Yields

A rate increase may see yields on the 10-year note rising to 4.8 percent by the year-end, said Nagai.

The yield on the September Eurodollar futures contract was 1.49 percent from 1.43 percent a week ago. The yield is a forecast for a three-month lending rate that has averaged 24 basis points higher than the Fed's target over the past 10 years.

Gross domestic product, the sum of all goods and services produced, may expand 4.6 percent for all of 2004, compared with 3.1 percent in 2003, based on the median forecast in a Bloomberg News survey of 61 economists taken Jan. 30 to Feb. 6. This year's projected growth would be the fastest since 7.2 percent in 1984.

Declines in Treasuries may be curbed as some investors expect inflation won't accelerate soon, allowing the Fed to keep its benchmark target rate unchanged.

Ben S. Bernanke, a Fed governor, on Tuesday said that ``inflation appears to be quite low'' and ``under control.''

A government report Friday on gross domestic product showed the GDP deflator, a gauge of inflation, rose 1.2 percent last quarter, after a 1.6 percent jump in the third quarter.

The amounts of five- and 10-year notes to be sold next week will be announced on Monday. The government may auction $16 billion of five-year notes on Wednesday and $11 billion of 10-year Treasury notes next Thursday, according to analysts at fixed- income research firm Wrightson ICAP LLC.

Bond Sales

The Treasury will borrow a net $177 billion this quarter to finance a budget deficit the Bush administration estimates will reach a record $521 billion this year.

Treasuries may fall on speculation a drop in the yen will cut demand from Japan's central bank at next week's sales. The Bank of Japan may trim currency sales and have less need to buy Treasuries with the dollar proceeds after the yen's 4.4 percent decline against the dollar in the past three weeks. The currency today dropped 0.1 percent to 110.16 against the dollar.

``With a rising dollar, there's no need for intervention by the Bank of Japan, and that will mean lower bond demand at the auctions,'' Nagai said. ``Yields will rise as the dollar gains.''

Foreign central banks, including those of Japan and China, are the largest foreign holders of U.S. government securities, and have been selling their currencies for dollars and investing the proceeds in shorter-maturity Treasuries.

Japan said it has sold 10.5 trillion yen ($95 billion) this year, more than half last year's record 20.4 trillion yen, to stem its currency's gain and protect exports. It raised its Treasury holdings for 14 straight months to $545.2 billion in December.

To contact the reporter on this story: Shamim Adam in Singapore sadam2@bloomberg.net

Last Updated: March 4, 2004 00:45 EST