* Bonds' safe-haven appeal bolstered by weaker stocks
* Decent demand seen in Tuesday's two-year note auction
* Consumer confidence data also set for Tuesday morning (Adds economist's quote and home price index)
By Chris Reese
NEW YORK, July 28 (Reuters) - Longer-dated U.S. Treasury debt prices rose on Tuesday as stocks retreated, taking back some of their recent gains and bolstering the safe-haven appeal of government debt.
Treasury price gains were limited however as investors nervously awaited the auction of $42 billion of two-year Treasury notes on Tuesday afternoon as part of a record-large spate of new debt supply this week.
"We ran so fast with stocks that there is probably going to be some profit taking, which is beneficial to bonds," said William Larkin, fixed income portfolio manager at Cabot Money Management in Salem, Massachusetts.
The benchmark 10-year Treasury note US10YT=RR was trading 6/32 higher in price for a yield of 3.70 percent, down from 3.72 percent late on Monday. Benchmark yields, which move inversely to prices, climbed to 3.77 percent, the highest in over a month, on Monday as worries over pending supply chipped at Treasury prices.
But those concerns eased somewhat on Tuesday, with many analysts expecting relatively solid demand for the two-year notes, as their shorter maturity makes them less susceptible to economic uncertainty.
"The two-year is expected to go off without a hitch because it is the optimal part of the curve," Larkin said.
The Treasury will auction $39 billion of five-year notes on Wednesday, and $28 billion of seven-year notes on Thursday. It sold $6 billion of 20-year inflation-protected securities on Monday, bringing this week's total coupon sales to $115 billion.
In addition to Tuesday's auction, investors were waiting for data on July consumer confidence due later in the morning.
The market was little affected by data from Standard & Poor's/Case Shiller showing home prices in 20 metropolitan areas rose by 0.5 percent in May after falling 0.6 percent in April. Investors had been looking for May home prices to decline by 0.5 percent. For details see [ID:nN28114070].
For some analysts, the data was more evidence that the U.S. housing sector may be pulling out of its sharp decline, adding to data on Monday showing higher-than-expected new-home sales in June.
"It's largely consistent with the bottoming process in the housing sector," Tom Porcelli, senior economist at RBC Capital Markets in New York, said of the home price index.
Two-year Treasury notes US2YT=RR were trading 1/32 lower in price for a yield of 1.06 percent, up from 1.04 percent late on Monday, while 30-year bonds US30YT=RR were 15/32 higher for a yield of 4.60 percent, down from 4.63 percent late on Monday. (Additional reporting by Richard Leong; Editing by James Dalgleish)
