TREASURIES-Bonds plunge as data, stocks undermine safety bid

* Construction, manufacturing data add to bearish tone

* 10-year note off more than a point

* Spending data may mean more government stimulus (Adds trader quote, updates prices)

By Chris Reese

NEW YORK, June 1 (Reuters) - U.S. Treasuries fell on Monday, with the benchmark 10-year note off well over a point as higher stocks and better-than-expected data on construction spending and manufacturing sapped the safe-haven appeal of government debt.

Data on personal income and spending also undermined bonds with expectations the U.S. government will have to issue even more debt to stimulate the economy, and the benchmark note yield rose to near the six-month high hit last week.

Treasuries are off because of "the stock market, first of all, and then the economic data second of all, with construction coming in positive instead of negative and the (manufacturing) index showing a little bit more of an increase than expected," said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson & Co in Seattle.

Benchmark 10-year Treasury notes US10YT=RR were trading 1-18/32 lower in price for a yield of 3.66 percent, up from 3.47 percent late on Friday. The yield reached as high as 3.75 percent last week, the strongest level since mid-November.

The 30-year bond US30YT=RR was trading 2-25/32 lower for a yield of 4.53 percent from 4.35 percent.

"It's a rebalancing into stocks from bonds," said T.J. Marta, chief market strategist at Marta on the Markets in Scotch Plains, New Jersey.

The U.S. manufacturing sector contracted at a slower pace than expected in May, with the Institute for Supply Management. reporting its index of national factory activity rose to 42.8 last month, the highest reading since September and up from 40.1 in April. Economists had forecast a May ISM reading of 42. For details see [ID:nN01259240]

U.S. construction spending rose unexpectedly in April by 0.8 percent, the biggest increase in eight months. It was the second consecutive month of advancement for the measure and provided further evidence the recession was easing.

"Although it definitely still remains in recessionary territory, thoughts are that the economy may be nearing a bottom in here, reducing safe-haven bid for Treasuries," D.A. Davidson's Hurley said.

The Commerce Department said U.S. consumer spending fell 0.1 percent in April after a revised 0.3 percent fall in March, even though personal income posted the biggest rise in 11 months.

"The consumer doesn't seem convinced that it's an ongoing benefit with the income increase. After careful consideration, the consumer is retrenching with the decline in spending. That means the government has to stimulate the economy more," Marta said.

Bonds began the day lower when stock futures were bolstered by stronger Chinese economic data, which boosted investor optimism even as General Motors Corp (GM.N) filed for bankruptcy protection. (Additional reporting by Richard Leong and Mary Angela Rowe; Editing by Leslie Adler)