TREASURIES-Profit-taking as jobless claims drop, oil falls

*Profit-taking after three-day winning streak

*Weakness in bunds overnight weighs on Treasuries

*Jobless claims slip encourages profit-taking

*Losses briefly cut on unexpectedly weak Philly Fed index

*Choppy trade, positioning before supply, Fed meeting (Updates prices and comments)

By Ellen Freilich

NEW YORK, June 19 (Reuters) - U.S. Treasury debt prices fell on Thursday as a drop in jobless claims and lower oil prices, both positive for the economy, encouraged traders to take profits after a three-day winning streak.

The evidence that the labor market was not in sharp decline encouraged the profit-taking, though an unexpectedly weak Philadelphia Federal Reserve business activity index briefly trimmed losses.

Lower oil prices were responsible for some of the pressure on bond prices, based on the idea that if oil is cheaper, "that leaves a little more room for consumer spending" and economic growth, said John Spinello, senior vice president and chief fixed-income technical strategist at Jefferies & Co.

U.S. crude and refined products futures tumbled on Thursday on news that China would raise gasoline and diesel prices.

The weak reading on the June Philly Fed index, including a drop in new orders and future expectations, prompted some talk that the nationwide Institute for Supply Management manufacturing index would also be weak. Still, the news on manufacturing did little to curb the selling in bonds.

As traders took profits, benchmark 10-year Treasury notes US10YT=RR fell 16/32 in price, their yield rising to 4.21 percent from 4.15 percent late on Wednesday.

Two-year notes US2YT=RR, especially sensitive to shifting perceptions on Fed monetary policy, fell 5/32, their yield rising to 2.93 percent from 2.86 percent on Wednesday.

Part of the pressure on bond prices came from overseas, where bunds and other euro bonds weakened, analysts said.

"Bunds got hit and we followed them; they would be an even larger beneficiary of lower crude oil prices than we would be," Spinello said.

Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi, said bond prices moved higher this week and "the rally ran out of steam" when the two-year note yield reached 2.80 percent.

At mid-session, stocks had moved into the plus column, giving traders another reason to sell bonds.

New supplies of two- and five-year notes arriving next week encouraged some selling in the short- to medium sector of the maturity range, Spinello said.

With little new economic data due before next week's two-day Federal Reserve policy meeting, "people are squaring up their books before the weekend and before some potential fireworks from the Fed meeting next week," Rupkey said.

"The market may have priced in too many rate hikes, but the Fed still seems to be talking tough on inflation and its 'bias' statement could sound a little on the hawkish side - at least in terms of talking less about downside risks to the economy," he said. "That's causing people to take some profits."

For several weeks, the market has debated whether the Fed is likely to raise interest rates this summer. Inflation hawks took the field last week, sending yields sharply higher on the view that the Fed would raise interest rates several times this year, with even a slim chance of a rate increase this month.

Several press reports at the start of this week, however, all seeming to bear the imprimatur of Fed officials, allowed the market to refine that view, however. With the economy weak and credit conditions shaky, the case for rate increases began to look less urgent. As a result, bond prices rose during the first part of the week.

"It's a very choppy environment," Spinello said. "At about 4.25 percent (on the 10-year yield) money gets put to work. We're in a range between 4.11 percent and 4.30 percent. It's tough for the traders." (Editing by Dan Grebler)