* Yields steady near historic lows on flight-to-quality move * Two-year note's yield touches fresh record low * Deflation worries, speculation of further Fed cut add support By Kaori Kaneko TOKYO, Nov 21 (Reuters) - U.S. Treasuries were steady in Asia on Friday, holding sharp gains made the previous day when recession fears hammered shares on Wall Street and drove government debt yields down to historic lows. Treasuries were supported by worries about deflation and speculation that the Federal Reserve will cut rates further to support the flagging economy, with the two-year note's yield touching a fresh record low and the 10-year yield staying near a 50-year trough hit on Thursday. U.S. stocks plummeted on Thursday on a frantic flight from risk prompted by investors' deepening economic fears, with the benchmark Standard & Poor's 500 index sagging to its lowest level since 1997. [.N] "The flight-to-quality move accelerated this week following a batch of weak U.S. economic data, which has increased the view that the economic downturn may be prolonged," said Minako Iida, a fixed-income strategist at Barclays Capital Japan. "Also, worries about deflation risks have emerged in the market, shifting from inflation concerns," she said. Analysts said the market has started pricing in the possibility that the Fed will keep rates low after an expected rate cut to 0.5 percent at its meeting next month, which also added support to the debt market. St. Louis Fed President James Bullard said on Thursday that deflation would be very damaging to the United States economy and with nominal interest rates already very low, quantitative easing may be needed to keep it at bay. [ID:nN20440863] The two-year yield was steady in price to yield 0.989 percent, after touching a fresh record low of 0.9586 percent in early Asian trade. The benchmark 10-year note inched down 7/32 in price to yield 3.028 percent , staying near a five-decade low of 2.990 percent hit late on Thursday. Fears about a deepening economic downturn and credit crunch grew amid uncertainty over the prospects of a rescue deal for U.S. automakers and a plunge in Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) shares to levels not seen since 1994. [ID:nLK678894] Citigroup is reportedly looking at multiple options as its share price sinks, including selling businesses, selling shares, or merging with another firm. [ID:nWEN0918] Investors were also concerned that there may not be any additional financial measures to shore up the deteriorating economy before U.S. President-elect Barack Obama takes the helm in January. Analysts said the flight-to-quality moves are likely to continue at least until the year-end, supporting the debt market. (Reporting by Kaori Kaneko; Editing by Chris Gallagher)

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