TREASURIES-Most bond prices turn higher as stocks sink

* Traders position for 7-yr note auction

* Treasury to sell $29 billion in 7-yr notes

* Stock retreat whets taste for safe-haven U.S. debt

(updates after stocks turn lower)

By Ellen Freilich

NEW YORK, July 29 (Reuters) - Most U.S. Treasuries prices rose on Thursday after a stock market retreat whetted investors' appetite for safe-haven U.S. government debt just ahead of the Treasury's seven-year note auction.

U.S. stocks erased early gains and moved lower, pushing the broad S&P stock index down more than 1 percent.

A steep Treasury yield curve, with the difference between five- and 30-year yields the largest in 20 years, may also have drawn in some buyers, said one rate strategist.

The benchmark U.S. 10-year Treasury note US10YT=RR, down early in the session, was up 2/32 near midday, its yield easing to 2.98 percent from 2.99 percent late on Wednesday.

The 30-year Treasury bond US30YT=RR remained in the minus column, but cut about half its losses.

John Spinello, chief fixed-income technical strategist at Jefferies & Co. in New York, said the difference between five- and 30-year yields had widened to at least a 20-year high before buyers came in.

Traders said the market was positioning for the Treasury's auction at 1 p.m. (1700 GMT) . Dealers said the success of this week's two- and five-year Treasury note auctions boded well for the sale of seven-year notes this afternoon.

Despite the rebound Treasury prices have seen since Wednesday's $37 billion five-year auction, some dealers expect the seven-year auction high yield to be in line with, or even a little lower, than the yield at which seven-year notes trade simultaneously in the open market. That relationship appeared during the auctions of two-year notes and five-year notes held Tuesday and Wednesday, respectively.

Foreign buyers and fund managers have warmed to the seven-year note since it was re-introduced by the Treasury Department. Direct bidders have taken down an average of 12 percent over the past six auctions, while indirects have taken 49 percent, on average. In late June, directs took 9.8 percent while indirects, often seen as a proxy for foreign central banks, took down 51 percent.

"Non-dealer bidders tend to take down a larger percentage of the seven-year note than the two shorter, month-end offerings," according to a Wrightson ICAP research note.

"Over the past 12 months, other direct and indirect bidders collectively have been awarded an average of 62 percent of new seven-year note offerings, versus 55 percent for the five-year note and 54 percent for the two-year note," the note said.

"The split between foreign investors and domestic fund managers varies ...from month to month, but awards to both of those categories have tended to run slightly higher in recent quarters in the seven-year than in the two- and five-year notes," it said.

Traders said whatever the price and yield of the seven-year note at 1 p.m. turned out to be, the high yield in the auction would likely match it.

In when-issued trade, the seven-year note US7YT=RR to be sold at 1 p.m. (1700 GMT) yielded 2.37 percent on Thursday.