TREASURIES-Prices ease as stocks sap safe-haven bid

* Higher stocks erode bonds' safe haven appeal

* Losses extended after data on continued jobless claims

* Notes cheapened ahead of seven-year auction (Adds trader quote, updates prices)

By Chris Reese

NEW YORK, July 30 (Reuters) - U.S. Treasury debt prices eased on Thursday, taking cues from surging stocks which eroded the safe-haven appeal of lower-risk securities like government debt.

Treasuries extended losses after weekly data on U.S. jobless claims showed the number of continued claims was below expectations, reinforcing some expectations that the economic decline may be slowing.

Traders also moved to cheapen Treasuries ahead of an auction of $28 billion of seven-year notes on Thursday, which follows on the heels of poor demand at current prices in the auction of $39 billion of five-year notes on Wednesday and $42 billion of two-year notes on Tuesday.

Treasuries eased because "stocks are up," said Marty Mitchell, head of government bond trading at Stifel Nicolaus in Baltimore, adding "we have also had some disappointing auctions this week."

Benchmark 10-year Treasury notes US10YT=RR were trading 12/32 lower in price for a yield of 3.72 percent, up from 3.67 percent late on Wednesday, while the two-year note US2YT=RR was 2/32 lower in price for a yield of 1.20 percent from 1.17 percent.

Mitchell noted however that while stocks were trading almost 2 percent higher, losses seemed to be limited in longer-dated Treasuries as traders were reluctant to steepen the Treasury yield curve. "It is curve plays -- the long end has been performing very well all week and there seems to be a good bias to flatten the curve."

Curve-flattening trade has pulled the gap between two-year Treasury note yields and 10-year note yields in to about 251 basis points on Thursday from a recent high of about 269 basis points on Monday.

The Federal Reserve was buying Treasuries on Thursday as part of a program intended to free up lending and lower longer-term interest rates like those on mortgages, which also served to put a bit of a floor under price losses.

Still, the seven-year note auction loomed over market trade. Investors are increasingly worried that the ever-rising volumes of U.S. government debt issuance may have grown to the point where the global market simply can not absorb it all. This week's issuance of $115 billion of new notes is a record large size.

"Given the poor reception to the previous two auctions this week, it's entirely reasonable to expect another tepid reception to this one," said T.J. Marta, market strategist with Marta on the Markets in Scotch Plains, New Jersey.

The government said continuing claims, or the number of people staying on jobless benefit rolls after collecting an initial week of aid, fell to 6.2 million in the week ended July 18, which was the lowest since early April. Economists had forecast continuing claims of 6.3 million. For details see [ID:nN30338472].

Five-year notes US5YT=RR were yielding 2.73 percent compared with a high yield of 2.69 percent in Wednesday's auction, while the 30-year bond US30YT=RR was 21/32 lower in price for a yield of 4.55 percent against 4.51 percent late on Wednesday.

(Additional reporting by Burton Frierson) (Editing by Theodore d'Afflisio)