* U.S. Q3 GDP raises concern about fourth-quarter growth
* Market surprised by ECB rate cut
* October nonfarm payrolls, due Friday, could influence Fedoutlook
By Ellen Freilich
NEW YORK, Nov 7 (Reuters) - Prices for U.S. Treasuries roseon Thursday on a surprise rate cut by the European Central Bankand concern about future U.S. economic growth.
U.S. growth picked up in the third quarter, but slowergrowth in consumer spending during the period suggested theeconomy could be losing momentum.
Inventory gains accounted for 0.8 percentage point of the2.8 percent growth, suggesting third-quarter growth could evolveto slower growth in the fourth quarter.
"Third-quarter GDP borrowed some growth from the fourthquarter due to the buildup in unsold inventories which is not asustainable source of growth; and we had an unexpected ECB ratecut," said Jake Lowery, Treasury trader and portfolio managerfor global interest rates at ING U.S. Investment Management inAtlanta, with $190 billion in assets under management.
The ECB cut interest rates to a record low on Thursday,saying it could take rates even lower to keep the euro zone'srecovery from stalling as inflation tumbles.
Bond prices also benefited from "follow-through from thebroader trend in U.S. rates this week which has been a reactionto some dovish conclusions reached by two prominent members ofthe Federal Reserve's research staff," Lowery said.
In new research papers to be released this week, two of theFed's top staff economists made a case for more aggressiveaction by the U.S. central bank to drive down unemployment bypromising to hold interest rates lower for longer.
That argument has driven a rally in Treasuries this week,particularly in five-year maturities, Lowery said.
Five-year Treasuries rose 4/32 on Thursday,leaving their yields at 1.31 percent, down from 1.34 percentlate on Wednesday and from 1.39 percent late last week.
For Treasuries, soft third-quarter consumer spending - a 1.5percent expansion rate, the slowest since the second quarter of2011 - was seen as likely to keep the Fed from trimming its bondpurchases this year.
"The Fed knows the calculation behind GDP and they will seethe moderating trend, which is weaker than what the headlinesuggests," said Sam Bullard, a senior economist with Wells FargoSecurities in Charlotte, North Carolina.
Prices of U.S. benchmark 10-year Treasury notes rose 10/32 in price as their yields eased to 2.605 percent from2.64 percent late on Wednesday.
The U.S. 30-year bond rose 1-5/32 in price asits yield fell to 3.71 percent from 3.77 percent on Wednesday.
A separate report on Thursday from the Labor Departmentsuggested the job market continued to gradually improve.
Initial claims for state unemployment benefits fell 9,000 toa seasonally adjusted 336,000 last week. Economists polled byReuters had expected first-time applications to fall to 335,000.
Investors will get more information on the labor market onFriday, with the release of October nonfarm payrolls figures.Those data are key for the U.S. Federal Reserve.
Economists polled by Reuters estimated non-farm payrollslikely grew by 125,000 jobs in October while the unemploymentrate rose to 7.3 percent.
The payroll figures were likely muddied by the 16-dayfederal government shutdown in the first half of October, whenCongressional Republicans sought to undermine President BarackObama's healthcare law as a condition of funding the government.
- Budget, Tax & Economy