U.S. Treasuries got a lift as investors turned bearish on stocks today in reaction to the latest stream of tech-related profit warnings that underscored the ongoing weakness in the economy. But observers of the bond market said the real test will come on Friday, when the

Labor Department

releases its employment report for May, which could guide the next move by

Alan Greenspan and his team of central bankers.

Lately, the two-year note was up 1/32 to 99 15/32, with a yield of 4.290%. Yields and prices move in opposite directions. The 10-year benchmark note gained 5/32 to 96 8/32, lowering the yield to 5.500%, while the 30-year Treasury bond, or the long bond, climbed 9/32 to 93 16/32, yielding 5.838%.

"We've been range-bound for awhile, and we're waiting to get a better handle of the economy before breaking out of the range," said David Ging, a Treasury market strategist at

Credit Suisse First Boston

.

So far, a consensus on the economy remains elusive, as recent data have indicated both a recovery and ongoing sluggishness. Tuesday's

consumer confidence index for May came in above expectations, showing that higher unemployment and the economic slowdown haven't done much to curb consumer spending. Treasuries fell as investors questioned whether the

Federal Reserve would aggressively cut rates.

Nevertheless, the 5% decline in durable goods orders in April, rising weekly jobless claims and a slowing demand for housing have bolstered hopes, especially on the short end of the market, that the Fed will keep easing rates. The

initial jobless claims for the week ended May 25 will be released tomorrow.

Given the coming tax cuts, which experts tend to believe will give a boost to growth, this week's economic reports would help narrow the market's expectations for the Fed's next move. The Fed, which next meets for two days starting June 26, has lowered interest rates five times since January, each time cutting the federal funds target rate by 50 basis points to the current level of 4%.

Dennis Hynes, managing director and chief investment strategist at

W.R. Pressprich & Co.

, said Treasuries could see more strength if the selloff in the stock market continues. "If the

S&P 500

June contract closes under 1245, then I think that will get the attention of investors who will buy Treasuries," he said. "I do think a weak

employment report on Friday would inspire the flight to quality," Hynes added, referring to the process through which investors take money out of the volatile stock market and put it in more predicatable fixed-income securities.

"Weak employment means less good earnings for corporations and that will push stock prices down," he said. "But bad news for the economy means good news for bonds."