TREASURIES-U.S. bonds fall amid uncertainty over new supply

* Traders set up for first 30-year TIPS auction since 2001

* Analysts say biggest price drivers are supply, stocks (Recasts first paragraph; updates market activity)

By Emily Flitter

NEW YORK, Feb 22 (Reuters) - Longer-dated U.S. Treasury debt prices fell on Monday amid uncertainty over the Treasury market's ability to absorb record new issuance this week.

The prices of 30-year Treasury bonds and 10-year Treasury notes fell as traders prepared for an $8 billion auction of 30-year inflation-indexed securities scheduled for 1 p.m. (1800 GMT). The Treasury Department last issued 30-year TIPS in October, 2001.

"There's a little uncertainty as to how we'll be able to take down the size of that," said Rick Klingman, managing director of Treasury trading at BNP Paribas in New York.

"TIPS traders are selling the back end of the curve to set up for that auction."

The benchmark 10-year Treasury note US10YT=RR was down 2/32 to yield 3.79 percent, up from 3.78 percent late on Friday. The 30-year Treasury bond US30YT=RR was down 10/32 for a yield of 4.73 percent, compared with 4.71 percent late on Friday.

Prices in the middle of the curve showed less movement. The three-year Treasury note US3YT=RR rose 1/32 to yield 1.49 percent, compared with a yield of 1.50 percent late on Friday. The price of the seven-year Treasury note US7YT=RR was up 1/32 to yield 3.23 percent.

The yield curve continued a pattern of steepening on Monday, with the spread between two-year yields and ten-year yields nearing record highs.

Marty Mitchell, chief market technician at Stifel Nicolaus in Baltimore, said the curve was likely to flatten in coming days as the Treasury sells debt in the middle part of the maturity curve.

"Obviously supply this week is going to be the big focus," he added. "We'll keep an eye on stocks as well coming out of the Federal Reserve's discount rate move last week and the recent struggle for stocks to stay positive."

The Fed on Thursday raised the rate at which banks could borrow from its overnight window to 0.75 percent from 0.50 percent. Chairman Ben Bernanke is scheduled to testify on Wednesday before the House Financial Services Committee as part of his semi-annual reports to Congress on the state of the economy. Analysts said the Treasury market could be influenced by Bernanke's testimony.

But the No. 1 influence on the market this week, analysts said, would be new supply. Treasury is set to auction two-, five-, and seven-year notes this week in addition to Monday's TIPS auction, for a record-setting issuance totaling $126 billion. (Editing by Andrea Ricci)