* Total "longs" fall from 5-month high in latest week
* Net "longs" drop most in over two-years-JPMorgan
* No active clients long bonds before Treasuries auctions
NEW YORK, June 25 (Reuters) - Investors curtailed their positions in longer-dated U.S. Treasuries holdings in the latest week, after the Federal Reserve signaled it might reduce its bond purchases later this year if the economy shows further improvement, according to a survey released on Tuesday.
The change came as the U.S. Treasury Department was slated to sell $99 billion in short- and medium-term debt this week, starting with a $35 billion auction of two-year notes at 1 p.m. (1700 GMT).
J.P. Morgan Securities, which conducted the survey, said 6 percent of its Treasuries clients said on Monday they were "long" in their duration on U.S. government debt, or they owned more longer-dated Treasuries than their benchmarks, down from 19 percent a week earlier.
Last week's share of longs was the highest in five months.
By holding more longer-dated Treasuries, investors add duration or interest rate risk to their portfolios in anticipation of a market rally when longer-dated bonds generate higher returns than shorter-dated debt.
However, prices of longer-dated Treasuries plummeted and their yields rose sharply after Fed Chairman Ben Bernanke last week outlined the approach the central bank might take to reduce its current $85 billion monthly purchases of Treasuries and mortgage-backed securities, known as QE3.
Bernanke's remarks further roiled financial markets, which had already been rattled by his testimony before a congressional panel on May 22, in which he hinted at the possibility of less Fed stimulus.
At a press conference last week, Bernanke drew the distinction between less stimulus due to the Fed's buying fewer bonds and the tightening of monetary policy through raising short-term interest rates - which he said will unlikely occur even well after the Fed stops buying bonds.
On Monday, benchmark 10-year Treasury yields rose to 2.667 percent, the highest level in more than 22 months, according to Reuters data.
In J.P. Morgan's latest survey, 24 percent of its Treasuries clients said they were "short" in their Treasuries duration, or own fewer longer-dated Treasuries than their benchmarks, up from 15 percent a week earlier.
Bond yields continued to rise on Tuesday as investors shed more of their longer-dated debt holdings in response to stronger-than-expected data on durable goods orders, new-home sales and consumer confidence.
The share of "shorts" exceeded "longs" by 18 percentage points in the latest week, compared with a week ago when longs exceeded shorts by 4 points, J.P. Morgan said.
The was the biggest decline in net longs in more than two years, it said.
The share of investors who said they held Treasuries equal to their benchmarks rose to 70 percent from 66 a week earlier.
Among active clients, who are viewed as making speculative bets in Treasuries, 62 percent said their longer-dated Treasuries holdings matched their benchmarks, down from 77 percent the prior week.
The survey showed no active "longs," which has not happened since late March. This compared with 15 percent in the prior week.
Thirty-eight percent of active clients said they were short in duration versus their benchmarks, up from 8 percent a week earlier.
J.P. Morgan surveys 40 to 60 of its Treasuries clients weekly, of which 60 percent are fund managers, 25 percent are speculative accounts and 15 percent are central banks and sovereign wealth funds.
It asks 10 to 20 of its active clients each week about their Treasuries holdings, of which 70 percent are speculative accounts and the rest are money managers.