TREASURIES-Bonds ride Wall Street selloff higher

* US Treasury prices rise as equities plummet

* Sharp pullback in industrial output bolsters bonds

* Fed's presence in market also supportive

By Mary Angela Rowe

NEW YORK, June 16 (Reuters) - U.S. Treasury debt prices rose on Tuesday as Wall Street stocks slid on weak industrial output data, which put a damper on hopes for economic growth.

A further boon for Treasury prices came from the Federal Reserve's purchase of $6.45 billion Treasuries.

Last week's "green shoots" of better-than-expected data were quashed when May's U.S. industrial output fell more than expected and capacity utilization dropped to its lowest on record.

"There was a consensus building that the stock market had priced in an optimal scenario," said William Larkin, fixed income portfolio manager of Cabot Money Management.

"Things have run up so fast and so quickly that people are taking money off the table, giving the attention back to the fixed income side."

The 30-year bond US30YT=RRrose 1-13/32 on the day, pushing their yield nine basis points lower to 4.47 percent. Ten-year notes US10YT=RR rose 14/32 for a yield of 3.66 percent.

U.S. stocks retreated for a second straight session, slipping over 1.0 percent as investors questioned the likelihood of a robust economic recovery, a trend that was broadly supportive of government debt.

Three-year notes rose 4/32, having received a boost from Federal Reserve purchases, $5.9 billion of which were in the 3-year sector. The Fed is slated to make another round of purchases on Wednesday, targeting 7- to 10-year maturities.

Bonds were also helped by soft U.S. producer price index numbers for May. The PPI showed an increase of 0.2 percent rather than the 0.6 percent consensus forecast, confirming that price pressures remain subdued for the time being.

The market kicked off the session on a weaker note after a report showing a surprising jump in residential construction starts, which added to speculation that the beleaguered housing sector might be edging closer to a bottom.

Eventually, however, traders seemed to decide a growing supply of housing was not the best news amid an ongoing glut.

"Housing starts were better than expected, but I'm not sure that's good news," said Jeff Kleintop, chief market strategist at LPL Financial in Boston. "It might mean more inventory coming to the market over the next several months."

In the absence of any immediate Treasury supply, the market largely ignored an upward revision in the Congressional Budget Office's forecasts for the U.S. budget deficit. It is now expected to hit $1.43 trillion in fiscal 2010, a sum that will continue to test investor appetite for U.S. debt.