By Cordell Eddings and Matthew Brown Dec. 1 (Bloomberg) -- Treasury 10-year notes declined for the first time in six days as stocks rose and Dubai World began talks to restructure $26 billion of debt, damping demand for the relative safety of government debt. Ten-year yields rose from within four basis points of their lowest level in almost two months as China’s manufacturing grew last month at the fastest pace in five years. Australia’s central bank, citing the speed of the recovery, increased interest rates for an unprecedented third straight month. “Fear has subsided from the Dubai situation and global equities have got a modest bid,” said Ian Lyngen, senior government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “That said, we are still at very low yields, and the market seems to be comfortable having rates here given the context of the broader economic and policy environment.” The yield on the 10-year note rose three basis points, or 0.03 percentage point, to 3.23 percent at 8:45 a.m. in New York, according to BGCantor Market Data. The 3.375 percent security maturing in November 2019 fell 7/32, or $2.19 per $1,000 face amount, to 101 1/4. The yield touched 3.15 percent on Nov. 27, the lowest level since Oct. 2. Dubai World, a state-related holding company, is seeking to delay payments on less than half its $59 billion of obligations, reducing concern that a potential default may set back the global financial system’s recovery from the credit crisis. ‘Return to Normality’ “There appears to be a gradual return to normality, with the situation in Dubai stabilizing,” said Jason Simpson, a fixed-income strategist at Royal Bank of Scotland Group Plc in London. The MSCI World Index of shares rose 1 percent, while futures on the Standard & Poor’s 500 Index gained 0.8 percent. The MSCI index has gained 68 percent since it fell to a 13-year low on March 9. China’s purchasing managers’ index released today by HSBC Holdings Plc rose to a seasonally adjusted 55.7 from 55.4. The government’s PMI, also released today, held at an 18-month high. In the U.S., The Institute for Supply Management’s manufacturing index fell to 55 from October’s three-year high of 55.7, according to the median forecast in a Bloomberg survey before the data is reported at 10 a.m.. Other reports may show pending sales of existing homes and construction spending declined in October. Treasuries have lost investors 1.1 percent in 2009, heading for their first losing year in a decade, on signs the global economy is recovering from the biggest recession since World War II, according to indexes compiled by Bank of America Merrill Lynch. Optimism Wanes The U.S. is scheduled to announce in two days how much it plans to raise in the sale of three-year notes on Dec. 8, 10- year notes on Dec. 9 and 30-year bonds on Dec. 10. Investors will cut government bond holdings as record auctions damp prices, said Pacific Investment Management Co., which runs the world’s biggest bond fund. Demand for higher-quality corporate debt will increase as “excessive optimism” about a global recovery wanes, John Wilson, head of Pimco’s Australian unit, said in a statement today. Bill Gross, who runs the world’s biggest bond fund at Newport Beach, California-based Pimco, increased his holdings of government-related debt to 63 percent at Oct. 30, the highest proportion since July 2004, according to data on Pimco’s Web site. The U.S. unemployment rate probably held at a 26-year high of 10.2 percent in November, according to the median forecast in a Bloomberg News survey of economists before the Labor Department reports the figure on Dec. 4. Australia’s central bank boosted its benchmark interest rate by a quarter-percentage point for a third straight month as evidence mounted that the nation’s economy is strengthening. Higher Yields Reserve Bank Governor Glenn Stevens increased the overnight cash rate target to 3.75 percent from 3.50 percent, as forecast by 19 of 20 economists surveyed by Bloomberg. Treasury 10-year yields will rise to 3.49 percent by year- end, according to a Bloomberg survey, with the most recent forecasts given the heaviest weightings. Two-year yields will climb to 1 percent, from 0.66 percent today, the survey showed. Investors are demanding higher yields to invest in 30-year bonds after the Treasury Department announced on Nov. 4 plans to extend the average maturity of U.S. debt. Thirty-year bonds yielded 4.22 percent, or 99 basis points more than 10-year notes today, the most since May. To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Matthew Brown in London at mbrown42@bloomberg.net.

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