By Ellen Freilich

NEW YORK (Reuters) - U.S. Treasuries prices fellsharply Friday after the government reported that the U.S.private sector added 67,000 jobs, a surprisingly large number,to payrolls in August.

The Labor Department also said that overall U.S. employmentfell for a third straight month, but the drop was far less thanthe market expected.

Overall non-farm payrolls fell by 54,000 but this waslargely due to temporary federal census jobs decreasing by114,000, and so private employment was seen as a better measureof labor market health.

The news seemed to weaken investors' need for safe-havenU.S. government debt, causing the benchmark 10-year Treasurynote to fall more than a point in price, its yieldrising to 2.76 percent from 2.625 percent late Thursday.

"We've seen some pretty hefty asset allocation trades outof bonds and into stocks," said Kim Rupert, managing directorof global fixed income analysis at Action Economics LLC in SanFrancisco.

Stock index futures soared on the labor market news,pointing to a sharply higher open on Wall Street.

"If stocks get a sense that maybe the situation isn't asdire as presumed, they might see a little bit more upside intothe long weekend," Rupert said. "That may weigh onTreasuries."

The 30-year bond suffered a loss of more thantwo points, its yield jumping to 3.86 percent from 3.72 percentThursday.

The Treasury market also faces supply next week with theTreasury auctioning three-, 10- and 30-year securities.

The supply provided an "extra incentive to cheapen up theTreasury market a little," she said, adding that before a longholiday weekend, "huge" market moves might not be sustained.

(Editing by Chizu Nomiyama)