Market punishes U.S. Treasury bonds after poor auction

NEW YORK Aug 11 (Reuters) - The U.S. Treasury sold $16 billion worth of 30-year long bonds at a poorly received auction on Thursday, with investors showing the weakest overall demand in 2-1/2 years and foreigners largely steering clear.

The auction suffered from the extreme volatility sweeping through global financial markets recently, which have been roiled by a damaging political battle over the U.S. budget and a downgrade of the U.S. credit standing.

Investors submitted bids worth 2.08 times the amount on offer, the lowest since February 2009. A measure of foreign demand -- the indirect bidder category -- accounted for just 12 percent of the sale, the lowest since February 2008.

In the open market, the 30-year bond US30YT=RR lost 5 points in price immediately after the dismal auction results were released. (Reporting by Burton Frierson and Richard Leong; Editing by James Dalgleish)