(Updates prices) * Fed meeting next week in focus * Traders position for curve flattening on rate increase * Consumer sentiment declines By Karen Brettell NEW YORK, Sept 11 (Reuters) - U.S. Treasury prices gained on Friday as investors focused on whether the Federal Reserve is likely to raise interest rates for the first time in almost a decade when it meets next week.
Investors have reduced expectations that the U.S. central bank will act next week due to stock market turmoil from concerns over Chinese and global growth.
If the Fed does not raise rates, it may still suggest that an increase at its October or December meeting is likely.
"It's all about whether the Fed indicates that they are going to do some kind of tightening," said Tom di Galoma, head of rates and credit trading at ED&F Man Capital Markets in New York.
Benchmark 10-year notes were last up 10/32 in price to yield 2.19 percent, down from 2.22 percent late on Thursday. Thirty-year bonds gained 24/32 in price to yield 2.95 percent, down from 2.99 percent.
The yield curve flattened earlier on Friday as investors prepared for a possible rate increase. The gap between five-year note and 30-year bond yields flattened to 142 basis points, before steepening back to 144 basis points.
"Investors are trying to get into flattening trades because their perception is that if the Fed doesn't tighten next week they will tighten sometime this year," said di Galoma.
The completion of heavy new issuance of Treasury and corporate debt helped bonds rally.
The government sold $58 billion in new coupon-bearing supply this week, while investment-grade companies have sold more than $50 billion in high-grade debt so far this week.
Data on Friday showed that U.S. consumer sentiment hit its lowest level in a year in early September and producer prices were flat in August, signaling moderate economic growth and tame inflation that could weigh on the Federal Reserve's decision whether to hike interest rates next week.
(Editing by Lisa Von Ahn and Matthew Lewis)