May 27 (Bloomberg) -- Treasuries fell, eroding the biggest monthly gain in more than a year, on concern yields near the lowest levels in 2010 will curb demand when the U.S. sells $31 billion of seven-year notes today. Ten-year notes slid for a second day as reports showed more Americans than forecast filed - claims last week and the economy grew more slowly than first estimated. Stocks rallied. Dan Fuss, whose Loomis Sayles Bond Fund beat 95 percent of competitors in the past year, said he sold all of his Treasury holdings because of prospects interest rates will rise as the U.S. borrows unprecedented amounts. China called "groundless" a report it's reviewing euro asset holdings. "It's a difficult environment to bring supply at these levels of yields," said Martin Mitchell, head government bond trader at the Baltimore unit of Stifel Nicolaus & Co., a St. Louis-based brokerage firm. "The seven-year may not be as strong as we've seen in the recent past, but it will be deemed as a success at these levels of yields." The yield on the benchmark 10-year note rose 8 basis points, or 0.08 percentage point, to 3.27 percent at 8:41 a.m. in New York, according to BGCantor Market Data. The yield dropped on May 25 to 3.06 percent, the lowest since April 29, 2009. It has fallen 38 basis points in May, the most since a decrease of 71 basis points in December 2008. picks up. Jobless Claims Initial jobless claims fell by 14,000 to 460,000 in the week ended May 22, Labor Department figures showed today in Washington. Economists forecast claims would drop to 455,000, according to the median estimate in a Bloomberg News survey. Gross domestic product increased 3 percent in the first quarter, less than the median estimate in a Bloomberg News survey and below an advance estimate of 3.2 percent issued last month, figures from the Commerce Department showed today in Washington. Concern that countries such as Greece will default and threaten the existence of Europe's single currency has helped drive demand for Treasuries. The 10-year yield slid from 4.01 on April 5 to 3.06 percent two days ago, a drop of almost 1 percentage point. The euro's 14 percent decrease against the dollar this year may help Europe overcome its debt crisis, according to Emeric Challier, a money manager at Avenir Finance Investment Managers in Paris. 'Crisis Is Over' "The crisis is over," he said "The advantage of the euro drop is it will continue to support the recovery." The MSCI World Index of shares advanced 0.9 percent, heading for its first two-day gain in more than a month. Futures on the Standard & Poor's 500 Index climbed 2.3 percent. Europe's currency strengthened for the first time in four days, climbing 0.7 percent to $1.2268. The 10-year Treasury yield has increased more than 20 basis points since reaching the more than 12-month low two days ago. "It appears fear has at least taken a breather," Royal Bank of Canada said in a report yesterday by economists and analysts including Tom Porcelli and Jacob Oubina in New York. "We currently do not anticipate a meaningful slowing in the U.S. economy from events taking place in Europe." The company is one of the 18 primary dealers that are required to bid at the government debt sales. Treasuries have underperformed Europe's top-graded bonds this month, returning 2 percent, compared with 2.5 percent for German debt and 2.7 percent from U.K. gilts, Bank of America Merrill Lynch indexes showed. U.S. government securities advanced 2.3 percent in March last year, the indexes show. Rate Bets Futures on the CME Group Inc. exchange show a 35 percent chance U.S. policy makers will raise the benchmark rate by at least a quarter-percentage point this year, up from 34 percent yesterday. The Federal Reserve has held the target rate for overnight bank loans in a range of zero to 0.25 percent since December 2008. The U.S. seven-year notes being sold today yielded 2.758 percent in pre-auction trading, declining from 3.21 percent at the previous sale of the securities on April 29. Investors bid for 2.82 times the amount on offer last month, compared with an average of 2.76 for the past 10 auctions. Indirect bidders purchased 59.5 percent of the securities, versus the 10-sale average of 54.5 percent. Bidding declined at auctions of two- and five-year notes earlier this week. Loomis Sayles' Fuss said he doesn't own Treasuries in any of the investments he is directly involved with after selling the last of them this week. 'Fundamentals Are Awful' "The fundamentals are awful," Fuss said in a telephone interview yesterday from Boston. "The incremental borrower of funds in the U.S. capital markets is rapidly becoming the U.S. Treasury. Do you really want to buy the debt of the biggest issuer?" Fuss's Loomis Sayles Bond Fund returned 27 percent in the past 12 months, Bloomberg data show. The company oversees $145 billion. President Barack Obama has increased U.S. marketable debt to a record $7.9 trillion to fund spending programs, fueling speculation the supply of Treasuries will outstrip demand. --With assistance from Wes Goodman in Singapore, Vernon Silver in Rome and Candice Zachariahs in Sydney. Editors: Greg Storey, Dennis Fitzgerald

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