TREASURIES-Bonds fall on upbeat data, reduced Greek fears

* Bailout package for Greece reduces safe-haven bids

* Factory, consumer data signal a durable recovery

* U.S. borrowing needs fall, up chance to cut debt sales (Updates market action, adds quotes, changes byline)

By Richard Leong

NEW YORK, May 3 (Reuters) - U.S. Treasury debt prices fell on Monday as encouraging factory and consumer data and reduced anxiety over debt-strapped Greece's finances bolstered Wall Street and reduced safe-haven bids for government bonds.

European finance ministers said Sunday they cobbled a $147 billion aid package together, with Greece agreeing to drastic steps to cut government spending. But European governments must still seek parliamentary approval, and Greece has yet to show it can adopt these austerity measures. See [ID:nLDE642021].

Nagging worries over the fragile political path to clinch the aid package for Greece stemmed the losses in bonds.

"In the short term, the sovereign debt situation may die down but in the long run the sovereign debt issue will still be a major problem," said Mark Pawlak, market strategist with Keefe, Bruyette & Woods in New York.

Another factor that curbed the drop in bond prices was news that the Treasury Department will trim its borrowing needs the next couple of fiscal quarters amid rising tax receipts. This reinforced expectations the Treasury could reduce the auction sizes of its monthly debt offerings, which analysts say would help keep a lid on Treasury yields.

The Treasury Department said it expects to borrow a net $340 billion in the April-June quarter and $376 billion July through September. These borrowing estimates are less than the $483 billion borrowed in the January-March period.

Prices on benchmark 10-year Treasury notes US10YT=RR fell 10/32 at 99-13/32. Their yields, which move inversely to price, rose to 3.70 percent from 3.66 percent late on Friday.

The gap between two-year and 10-year note yields narrowed to 269 basis points from 270 late Friday.

While Treasuries weakened the stock market rallied, with the major indexes gaining 1.3 percent or more. [.N]

U.S. ECONOMY UP, BORROWING DOWN

While Europe lines up its finances to help Greece, the financial outlook for the United States is looking up, given the latest data on the manufacturing and consumer sectors.

The factory sector grew at its fastest pace in six years, while consumer spending rose for a sixth straight month despite high unemployment. [ID:nN03193333]

More business activity will generate more tax revenues, resulting in less government dependence on selling debt to fund its budget.

U.S. Treasury issuance, while it may have peaked, is still running at historically high levels, analysts said.

"Things have improved, but I don't see the borrowing picture improving that much," said Nancy Vanden Houten, an analyst at Stone & McCarthy Research Associates in Princeton, New Jersey.

Still, a better fiscal picture would enable the Treasury to pare its debt sales by $1 billion to $2 billion, especially on shorter maturities, as early as this month, analysts said.

The Treasury will announce details of its May refunding on Wednesday after it sold a record $139 billion in coupon-bearing debt last week. (Additional reporting by Emily Flitter; Editing by James Dalgleish)