US TREASURY OUTLOOK - Q2 GDP, Chicago PMI in focus

* Advance estimate Q2 GDP will be early focus for market

* Q2 GDP forecast is -1.5 pct

* Some see slight chance for positive Q2 GDP number

* Positive Q2 GDP read would likely hurt Treasuries

* New York NAPM, Chicago PMI July readings also due

NEW YORK, July 30 - The government's advance report on second-quarter GDP will offer a sense of how the economy entered the third quarter and will give the U.S. governemnt securities market its early focus on Friday.

A Reuters poll of economists resulted in a median forecast of a 1.5 percent contraction in the U.S. economy in the second quarter, on a seasonally adjusted annualized basis.

That would represent less damage than the 5.5 percent contraction recorded for the first quarter and would reflect the widely held view that the economy is weak, but that its decline has slowed enough to justify talk of stabilization.

The GDP report will be released to a U.S. Treasuries market that has just come off a week of auctions. But despite $115 billion in new coupon supply, including a $6 billion sale of Treasury Inflation-Protected Securities, benchmark Treasury yields mid-afternoon on Thursday, after the last of the week's auctions, were slightly easier than they were on Friday,

Analysts said a Q2 GDP report showing that GDP contracted 1.5 percent, as forecast, could elicit little reaction from the Treasury market.

A weaker-than-expected Q2 GDP reading could inspire some buying of Treasuries, while a stronger-than expected number could spur some selling.

ONLY A FEW SEE POSITIVE GDP

Few economists are making a case for a positive Q2 GDP reading. Of the 72 economists polled by Reuters, only three had a plus sign in front of their forecasts.

"But on the odd chance that Q2 GDP is positive, that would be a huge figure for the market," said William Sullivan, chief economist at JVB Financial Group in Boca Raton, Florida.

A gain in exports or government spending might be the factor in such an outcome, however unlikely, he said.

A positive Q2 GDP would prompt people to sell Treasuries and would likely lead to further stock market gains.

If Q2 GDP registered even a narrow plus, the Treasury market would "go into August with the perception being that the recession is over," Sullivan said.

A measure of Q2 employment costs, the Employment Cost Index (ECI), once an item of fascination for the inflation-wary bond market, has stepped down the ladder of bond market concerns because the weak labor market is keeping wages depressed.

Two regional reports on manufacturing in July will draw the market's attention. The New York NAPM index was 359.0 in June. No forecast was available for July.

The more influential Chicago Purchasing Managers Index (PMI), viewed as a precursor to the nationwide Institute for Supply Management (ISM) manufacturing index due on Monday, will get attention when it is released at 1345 GMT.

Economists polled by Reuters forecast a July reading of 43.0 for the Chicago PMI, up from 39.9 in June, but still showing contraction. A reading above 50 points to expansion.