POSITIVE OUTLOOK TEMPERED IN U.S. DEBT FUTURES Higher oil prices and stronger than expected U.S. employment growth led to sharp losses in U.S. interest rate futures and diminished what had been a positive chart outlook, financial analysts said. The increase of 319,000 in non-farm payroll employment during February was above market expectations for a rise of 170,000 to 200,000 jobs and sparked selling in Treasury bond futures that drove the June contract through key technical support at 101-2/32 at the opening Friday, they noted. "I don't like that fact that we had a close below 101," said Prudential Bache analyst Fred Leiner. The 101-2/32 level in the June bond contract had been the top of a three-month trading range, which when penetrated during the rally Wednesday led to bullish forecasts by chartists. But analysts called it a false breakout on the weekly charts when the June bond closed at 100-10/32 Friday. Some also forecast that the high of the week at 101-19/32 may signal a bearish double top formation portending steep losses. "I tend to go along with the double top scenario," said Northern Futures analyst Eileen Rico. Rico noted that the possible formation, along with the fact that the rally of the last two weeks in bond futures has occurred on relatively low volume, were negative signals. Despite what could be a negative chart outlook, Leiner remains cautiously optimistic, and June bonds should find support between 100 and 99-16/32 next week. The optimistic outlook, as well as Leiner's expectation that the yield curve will flatten in the near term, is based on an improving inflation outlook. With the dollar stable and economic data giving the Federal Reserve little room to ease monetary policy, "the inflation outlook is improving," Leiner said, and that should lead to relatively stronger bond prices than bill and Eurodollar prices. Still, Leiner noted that the recent rise in oil prices remains a concern for the inflation outlook. Oil rose during the week on reports that OPEC nations were maintaining production quotas and official prices, and got an extra boost Friday due to the suspension of oil exports from Ecuador after an earthquake Thursday. "The runup in crude oil will be a short-lived phenomenon," said Carroll McEntee and McGinley analyst Brian Singer. The rise in oil prices over the past week has been largely "media induced," Singer said. He noted that even though OPEC production may be within quotas, "oil stocks are at tremendously high levels." Although the Ecuador situation could cause a delay, oil prices will eventually decline to the lows of late February, he said, and that will be a supportive influence for bond prices.