By Deborah Levine, MarketWatch NEW YORK (MarketWatch) -- Treasury prices turned modestly higher on Thursday, reversing losses, after a pair of reports showed initial jobless claims fell more than expected and an index of wholesale inflation dropped. Data showing that China's growth slowed and comments from the Federal Reserve released late Wednesday about keeping interest rates steady will continue to support interest in U.S. debt. "Deflationary forces and the Fed's 'on hold' posture will make it rather difficult to see any backup in Treasury yields," said Tom di Galoma, head of U.S. rates trading at Guggenheim Partners. Yields on 10-year notes (UST10Y 3.04, -0.02, -0.49%) fell 2 basis points to 3.04%. Bond yields move inversely to prices. A basis point is 0.01 percentage point. Yields on 2-year notes (UST2YR 0.61, -.00, -0.66%) declined 1 basis point to 0.60%, just a hair above the record low. The Labor Department said producer prices fell 0.5% in June, while core prices rose 0.1%. The report comes one day before the more closely watched consumer-price index. Lower inflation is good for bondholders because rising inflation eats away at the value of fixed payments. Read about producer price index. "The data supported the view that price pressures are subdued near term," said analysts at Action Economics. A separate report showed 429,000 Americans filed first-time claims for unemployment benefits in the latest week, down 29,000. See more on jobless claims. Also, the New York Federal Reserve Bank said its Empire State Index, which gauges manufacturing activity in the New York region, fell to 5.1 in July from 19.6 in June. Readings over zero indicate growth, with higher numbers indicating more firms were growing. On Wednesday, 2-year yields fell by the most in almost five weeks, as minutes from the Federal Reserve's June policy meeting indicated officials agreed to consider further policy measures to stimulate growth if needed. Read about Thursday's bond market.

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