TREASURIES-Longer-term debt prices sink after U.S. 7-yr auction

* Soft 7-yr auction dampens appetite for longer-dated debt * Stocks head lower, but 10-, 30-yr Treasuries still fall * Spread between 5-yr and 30-yr bonds steepest in 20 years (Recasts; updates prices, adds quote, changes byline)

By Emily Flitter

NEW YORK, July 29 (Reuters) - Longer-dated U.S. Treasury prices fell on Thursday, while debt in the middle of the yield curve rose, following a wobbly auction of seven-year notes.

The Treasury Department's sale of $29 billion in seven-year notes was the sloppiest of the week's three auctions; its high yield was almost 2 basis points higher than the yield on seven-year notes trading simultaneously in the open market.

"Overall, the auction was definitely softer than expectations. This is contributing to a sell-off in Treasuries," said Jessica Hoversen, fixed-income market analyst at MF Global Research in Chicago.

A sell-off in 30-year bonds further steepened the Treasury yield curve, with the difference between five- and 30-year yields widening to the largest in 20 years.

The benchmark U.S. 10-year Treasury note US10YT=RR, fell 6/32 in price and its yield rose to 3.01 percent from 2.99 percent late on Wednesday.

The 30-year Treasury bond US30YT=RR lost 19/32 in price to yield 4.10 percent.

Traders were expecting the seven-year auction to be warmly received. Instead, its bid-to-cover ratio was lower than recent averages. It was the only auction of the week to tail. For more, click on [ID:N29271958]

The belly of the curve -- composed of two-year, five-year and seven-year notes -- was marginally higher following the auction. Stocks, which recently exerted heavy influence on Treasury price action, were lower for the day.

"It's felt less like there's a big macro theme other than positioning going on," said Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford, Connecticut.

"The bid for the front end can be attributed a little bit to a flight to quality as equities have been unable to get out of their own way today."

The seven-year note US7YT=RR was unchanged in price for a yield of 2.40 percent.

The two-year note US2YT=RR was unchanged in price from late on Wednesday and yielding 0.61 percent.