TREASURIES-Bonds slide on concerns over govt bailout cost

* Bonds slide on uncertainty about U.S. bank bailout cost

* Some relief in money markets, rates still elevated

* Treasury to sell record $34 bln in 2-year notes (Updates market action)

By Richard Leong

NEW YORK, Sept 22 (Reuters) - U.S. Treasury debt prices slid on Monday with benchmark yields hitting a two-week high amid worries about the size of the government's burden in its planned $700 billion bailout for the financial sector.

Bonds fell for a third straight session as players unwound some of their safe-haven bond holdings, prompted by concerns about the long-term impact this plan could have on U.S. government borrowing and creditworthiness.

"The good news is we have a plan, but the bad news is we need the plan," said Larry Dyer, interest rate strategist at HSBC Securities in New York.

The blueprint of the bailout proposal offered some relief to money markets after last week's upheaval, but short-term credit remained tight with interbank rates stuck at elevated levels.

Given the lack of economic data, news on the development of the rescue package will be the main focus for all markets on Monday, analysts and traders said.

"There's a lot in the plan we just don't know," Dyer said.

U.S. benchmark 10-year Treasury notes US10YT=RR were down 17/32 in price at 100-31/32. Their yield, which moves inversely to price, rose to 3.88 percent, up 6 basis points from late on Friday.

Two-year notes US2YT=RR were down 2/32 in price to yield 2.22 percent, up 3 basis points from Friday.

BORROWING SURGE

To cover the cost of the bailout, the Treasury would need Congress to increase the government's debt ceiling to $11.3 trillion from its current $10.6 trillion.

On Monday, the Treasury Department said it will auction a record $34 billion in two-year notes on Wednesday and $24 billion in 5-year debt on Thursday.

It will later sell a combined $54 billion in 3-month US3MT=RR and 6-month Treasury bills US6MT=RR.

Appetite for T-bills re-emerged as demand for cash and near-risk-free assets remained. Last week, money fund managers nearly stopped buying securities from banks and mortgage agencies such as the Federal Home Loan Bank System in anticipation of heavy withdrawals from investors.

Investors pulled billions from money market mutual funds at a record rate last week on fears about their losses tied to securities issued by troubled or bankrupt financial companies.

Three-month T-bill rates were down 7 basis points at 0.92 percent after falling near zero percent last week in a scramble for cash and ultra-short government debt.

Worries about the final shape of the bailout have also led investors to scale back on stocks as well as bonds.

U.S. stocks sagged following a dramatic two-day rally, led by a sell-off in financial shares linked to worries about the final shape of bailout proposal. Standard & Poor's 500 index .SPX was down 2 percent in late morning trading.

In other cash trading, five-year notes US5YT=RR were down 13/32 in price for a yield of 3.11 percent, up 10 basis points from late Friday, while 30-year bonds US30YT=RR traded 1-6/32 lower to yield 4.46 percent, up 8 basis points from Friday. (Reporting by Richard Leong; editing by Gary Crosse)