TREASURIES-Monday's a wash, auctions to set tone

* 3 percent yield on 10-year lures some buyers

* Prices little changed despite stronger new home sales

* Investors prepare for $104 billion in debt sales (Adds comment, updates prices, recasts lead, changes byline)

By Emily Flitter

NEW YORK, July 26 (Reuters) - The prices of U.S. government debt ended Monday near closing levels from the previous Friday, as investors shrugged off a jump in new home sales for June and prepared for an uncertain setup for Tuesday's sale of two-year notes.

Prices sank back to Friday's levels as the effects wore off of the European bank stress tests and stronger-than-expected home sales in June, which initially drew investors into riskier assets and depressed prices of safe-haven U.S. government debt.

The benchmark 10-year yield US10YT=RR climbed to a high of 3.03 percent before sinking back to 3 percent.

"There is still a considerable amount of negative sentiment around equity assets, and it's going to take more than one data point to change that," said Christian Cooper, senior rates trader at Jefferies & Co. in New York.

He added that the June home sales number was accompanied by almost no other catalysts for market movement. The day in Treasury trading was utterly dull.

"The only action that we saw was in corporate issuance," Cooper said.

Part of the price stability came from the 3 percent mark the 10-year yield hit.

"Ten-years are near a psychological level of 3 percent where buyers have interest as they believe a rally will ensue shortly, pushing the yield back to 2.8 percent," said Thomas di Galoma, head of fixed-income rates trading at Guggenheim Securities in New York.

U.S. 10-year Treasury notes finished the day with gains of 1/32 in price but were still yielding 3 percent, unchanged from late Friday.

Yields, which move inversely to prices, had pushed above 4 percent on the 30-year Treasury bond and above 3 percent on the benchmark 10-year Treasury note, the highest levels in about a week and a half.

The market also positioned for $104 billion in new two-, five- and seven-year notes the Treasury will sell this week.

Some analysts said the higher yields, combined with smaller auction sizes and investors' sustained interest in capital preservation, should assure a good bid for the auctions.

Others were less confident.

"I am skeptical," said Ward McCarthy, chief financial economist and managing director at Jefferies & Co in New York. "The stress tests are behind us and rates are at extremely low levels. Double dip and deflation hysteria is ebbing."

Some analysts said the performance of the stock market would influence demand at this week's Treasury auctions.

"The stock market is in recovery mode here and its near-term direction holds the key to this week's auctions," said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi UFJ in New York.

"With the long-awaited European bank stress tests out of the way, dealers will approach these auctions with caution," Rupkey said.

At the close of the trading day on Monday, the two-, five- and seven-year notes yielded 0.60 percent, 1.73 percent and 2.42 percent, respectively.

Among the more influential reports likely to impact bond prices this week are ones on consumer confidence, orders for durable goods, new jobless claims, a regional manufacturing index, and the advance estimate of second-quarter gross domestic product. (Additional reporting by Ellen Freilich; Editing by Kenneth Barry)