TREASURIES-U.S. debt prices fall as risk appetite returns

* U.S. stock index gains undermine Treasuries

* Light trading volume; no U.S. economic data

* Moody's downgrades Greek debt to junk status

* Some profit taking from recent Treasury price gains (Adds analyst's comments, updates prices, changes byline)

By Chris Reese

NEW YORK, June 14 (Reuters) - U.S. Treasuries fell on Monday with the long bond losing over a point in price in light trading volume as investors turned to riskier assets like stocks and away from lower risk U.S. government debt.

Stock purchases, and Treasury sales, were initially sparked by lessened worries over the potential for contagion from a euro-zone debt crisis, which helped push the euro on Monday to its highest level in more than a week.

Treasuries did pare losses however after Moody's Investors Service downgraded Greece's credit rating to junk status, rekindling some fears about euro-zone debt and bolstering the safe-haven appeal of U.S. bonds.

"We are still monitoring stocks for our direction," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco, adding "stocks are higher with a little bit more optimism on the (economic) recovery."

Benchmark 10-year Treasury notes US10YT=RR were trading 16/32 lower in price to yield 3.30 percent, up from 3.24 percent late on Friday.

Worries a sovereign debt default in Europe might cause another global credit crunch similar to that seen in 2008 pushed the benchmark yield down to 3.06 percent in late May, marking the lowest in over a year.

Rupert noted bond yields were not far off recent lows and prices were strong enough to allow some profit taking after recent gains.

"We are at rich levels, so it is going to take some other shocking headline or some other type of deterioration to get us to move higher again," Rupert said.

Volume in Treasuries was below half the 20-day moving average as of the early afternoon, ICAP said.

The 10-year Treasury note could continue to edge higher but would not break out of a recent range, said Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford, Connecticut.

"Could we see a further backup in rates testing the 3.32, 3.38 level? Certainly," he said. "Would that extend beyond 3.43, which is like the top of the range? Not on a day like today," Lyngen said.

A report by Moody's Investors Service that European banks would be able to ride out possible damage from their exposure to debt-laden countries such as Greece and Portugal sent U.S. stocks higher and Treasuries lower.

Major stock indexes were also up after the European Union reported industrial output in the euro zone posted its biggest year-over-year rise in April since data on the 16-nation region began to be tracked in January 1991.

"People are comfortable getting back into these assets, these securities that have been pressured recently," Lygen said.

The 30-year Treasury bond US30YT=RR fell 1-2/32 in price to yield 4.22 percent in price.

Moody's Investors Service on Monday downgraded Greece's government bond ratings into junk territory, citing risks in the euro zone/International Monetary Fund rescue package for the debt-laden country.

Analysts said the ratings cut was not a surprise as Standard & Poor's had already cut Greece's sovereign debt rating to junk status back in April.

"None of this should be a surprise to the market," said Jonathan Lewis, principal at Samson Capital Advisors in New York.

Comments by the president of the Federal Reserve Bank of St. Louis, James Bullard, that the European debt crisis would not throw off global economic recovery also boosted demand for risky assets, putting pressure on Treasuries, said John Brady, senior vice president at MF Global in Chicago.

Bullard, speaking in Tokyo on Monday, said the European crisis had not impacted the Federal Open Markets Committee's notion of when to raise the fed funds rate. (Additional reporting by Richard Leong and Emily Flitter: Editing by Andrew Hay)