European Union leaders holding a summit in Brussels paused early on Friday after hours of talks focused on trying to find a solution to the euro-zone debt crisis, and will resume later in the day. "Europe is clearly the focus right now, and US debt markets will continue to react mainly to news from the EU summit. Because the news so far hasn't been promising, Treasuries have caught a bid," said a market participant at a Japanese bank in Tokyo. "We will be watching yields on European debt, particularly Italy's. If it crosses the 7 percent mark, that will raise fears that the euro zone's debt is unsustainable," he added. Benchmark 10-year US T-note yields were at 1.98 percent , after falling as low as 1.96 percent. The 30-year T-bond yield was at 3.00, compared with 3.06 percent late in New York. Expectations also drooped after one EU diplomat said EU leaders had agreed the European Stability Mechanism will not have a banking licence, which could limit its firepower. * Conclusions in an EU draft seen by Reuters had included giving the euro zone's bailout fund a banking licence and issuing common euro-zone debt. The European Central Bank gave Treasuries a lift on Thursday when it quashed expectations it might introduce new quantitative easing measures and buy more bonds of debt-burdened euro-zone states if EU leaders reach an agreement on Friday. ECB President Mario Draghi said the euro zone's rescue fund, not the central bank, should remain the main tool to fight bond market contagion. The Treasury said on Thursday it will sell a combined $78 billion of instruments next week. It will auction $32 billion in three-year debt on Monday, $21 billion in 10-year notes on Tuesday, $13 billion in 30-year bonds on Wednesday and $12 billion in five-year Treasury inflation-protected securities on Thursday. With Europe in focus, traders shrugged off a bigger-than-expected drop in weekly US jobless claims on Thursday. First-time filings for unemployment benefits fell to a nine-month low of 381,000 last week, the US Labor Department said.