TREASURIES-Bonds slide on stock gains, inflation warning

* Bonds slump as investors favor stocks on lower oil

* Philly Fed Plosser's hawkish remarks are also a drag

* Demand is soft for $6 bln of 20-year TIPS (Updates market action, adds new quote/byline)

By Richard Leong

NEW YORK, July 22 (Reuters) - U.S. government debt prices slipped on Tuesday, as investors shifted money into stocks and unwound their safe-haven trades in bonds, prompted by another hefty decline in oil prices.

Treasuries also succumbed to perceived hawkish remarks from Philadelphia Federal Reserve Bank President Charles Plosser, who said rising inflation could force the Fed to lift interest rates before labor and financial markets recover.

"People see lower oil is offering a better outlook on stocks. Some of those flight-to-quality positions in Treasuries are being reversed," said Carl Lantz, interest rate strategist at Credit Suisse in New York.

Below-average investor demand at a $6 billion reopening of 20-year Treasury Inflation-Protected Securities, also called TIPS, briefly sent bond prices to session lows with 30-year bonds losing more than a full point.

The market gradually bounced back from their intraday lows, as traders concluded soft demand for TIPS was a sign that inflation fears are "not that acute," said Lou Brien, market strategist at DRW Trading in Chicago.

But this week's supply of new government debt has been a negative for Treasury prices. The Treasury Department is scheduled to sell a record $31 billion in two-year debt on Wednesday and $21 billion in five-year notes on Thursday.

The price for the benchmark 10-year Treasury note US10YT=RR was down 18/32 at 98-3/32 after falling as low as 97-30/32. Its yield, which moves inversely to its price, was 4.11 percent, up from 4.04 percent late Monday.

The two-year note's price US2YT=RR fell 8/32 with its yield jumping 13 basis points on the day to 2.72 basis points.

INFLATION WARY DESPITE LOWER OIL

Tuesday's $3 per barrel drop in oil allayed some worries about further price pressure hurting the economy, and lessened the urgency for the Fed to tighten monetary policy to combat inflation, analysts said.

But Plosser, who heads the Philadelphia Fed and is a voter on the Federal Open Market Committee this year, said the U.S. central bank will likely begin raising interest rates "sooner rather than later." For details see [ID:nN22196417].

He also emphasized that the current federal funds rate of 2 percent leaves the inflation-adjusted federal funds rate between minus 1 percent and minus 2 percent.

Last week the government said consumer prices in June rose up 5 percent from a year earlier, the biggest increase since 1991. That level of inflation is higher than all yields across the Treasury curve, meaning a negative return on bonds, after accounting for inflation, and effectively eliminating debt's safe-haven appeal.

While bonds ended lower in four of the past five sessions, stocks began the day on a weak note after Wachovia Corp WB.N posted an $8.9 billion quarterly loss, which undermined hopes that the banking sector was stabilizing. Normally such bad news from the financial sector would spur investors to buy government debt in the search for a safer-haven investment.

However, equities turned positive by late trading after crude oil prices CLc1 fell as much as $5 a barrel, which analysts said was expected to be good for the economy rather than alleviating much in the way of inflation fears.

The recovery in the stock market put downward pressure on other Treasury maturities. Five-year notes US5YT=RR were down 14/32 in price for a 3.47 percent yield, up from 3.37 percent late Monday, while the long bond US30YT=RR was down 23/32 to yield 4.67 percent, up from 4.62 percent late on Monday. (Additional reporting by Chris Reese;; Editing by Neil Stempleman)