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Benchmark 10yr notes are finding some support at a pivot point just above 3.34. Yields are currently at 3.3355. MBS are near their best levels of the day, now down only 3 ticks at 101-31. This should ease the weakness of the rate sheets not yet out this morning, but further gains would be needed for lenders already out with pricing to consider repricing for the better. Likely 102-02 would be needed, or extended stability at current levels or above.

U.S. house prices declined 0.3 percent on a seasonally adjusted basis from December to January, according to the Federal Housing Finance Agency’s monthly House Price Index. The previously reported 0.3 percent decrease in December was revised downward to a 1.0 percent decrease. For the 12 months ending in January, U.S. prices fell 3.9 percent. The U.S. index is 16.5 percent below its April 2007 peak and roughly the same as the May 2004 index level. The FHFA monthly index is calculated using purchase prices of houses backing mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac. For the nine Census Divisions, seasonally adjusted monthly price changes from December to January ranged from -1.3 percent in the Mountain and South Atlantic Divisions to +1.6 percent in the West South Central Division. The overall index now stands at its lowest level since May 2004

* RICHMOND FED MANUFACTURING SHIPMENTS INDEX +23 IN MARCH VS +29 IN FEB * RICHMOND FED MANUFACTURING SHIPMENTS INDEX +23 IN MARCH VS +29 IN FEB * FED'S PIANALTO SAYS EXPECTS US RECOVERY TO CONTINUE AT A MODERATE PACE * PIANALTO SAYS EXPECTS INFLATION PRESSURE FROM COMMODITIES, ENERGY TO BE TRANSITORY * PIANALTO-EXPECT ECONOMY TO EXPAND AT SLIGHTLY ABOVE-AVERAGE GROWTH RATE OF ABOUT 3 PCT A YEAR * PIANALTO-EXPECT UNDERLYING TREND IN BROAD CONSUMER PRICES TO RISE GRADUALLY TOWARD 2 PCT BY 2013 * PIANALTO- SHARP RISE IN ENERGY COSTS ASSOCIATED WITH UNREST IN MIDDLE EAST, AFRICA A KEY RISK FACING THE ECONOMY

FED'S FISHER - WE ARE SEEING NOW THAT FREE MONEY ENCOURAGES SPECULATION* DOUBT THAT ROLE OF U.S. DOLLAR IS GOING TO CHANGE * U.S. HOUSING SECTOR IS GOING TO BE DEPRESSED FOR QUITE SOME TIME *Today 05:33 - FED'S FISHER - EXPECT GROWTH OF ABOUT 3.5 PCT THIS YEAR IN U.S. * FISCAL CONSOLIDATION IS GOING TO BE VERY PAINFUL

(Reuters) - Forces loyal to Muammar Gaddafi attacked two Libyan towns on Tuesday after a third night of air raids on Tripoli, but the Western campaign faced questions over the future of its command structure. With anti-Gaddafi rebels struggling to create a command structure that can capitalize on the air strikes against Libyan tanks and air defenses, Western nations have still to decide who will run the operation once Washington pulls back. The United States will cede control of the air assault in days, President Barack Obama said, even as divisions in Europe fueled speculation that Washington would be forced to continue leadership of air patrols to replace the initial bombardment. "We anticipate this transition to take place in a matter of days and not in a matter of weeks," Obama, facing questions at home about the U.S. military getting bogged down in a third Muslim country, told a news conference on a visit to Chile. In the latest fighting on Tuesday, Gaddafi forces used tanks to shell the rebel-held western city of Misrata and casualties included four children killed when the car they were traveling in was hit, residents told Reuters. The death toll on Monday had reached 40, they said. "The situation here is very bad. Tanks started shelling the town this morning," a resident, called Mohammed, told Reuters by telephone from outside the city's hospital, adding: "Snipers are taking part in the operation too. A civilian car was destroyed killing four children on board, the oldest is aged 13 years."

The Day Ahead: Focused on Developing Events Abroad