* U.S. retail sales, jobless claims lift Treasuries
* Strong U.S. 30-year bond auction helps
* Iraq tension worsens, spurs safety bid (Recasts, updates prices, adds comment, auction results)
NEW YORK, June 12 (Reuters) - U.S. Treasury debt prices rallied on Thursday after a robust auction of 30-year bonds that somewhat eased concerns about fading demand for long-term government paper.
Weaker-than-expected U.S. economic data, and diminished appetite for risk with Wall Street stocks down on the day, also helped Thursday's gains. Yields on U.S. 30-year bonds and 10-year notes pushed to one-week lows.
An overall strong 30-year bond auction extended the rally, more than making up for the lackluster reception for both the U.S. three-year and 10-year note sales this week.
The 30-year yield came in two basis points lower than market expectations before the 1 p.m. deadline (1700 GMT). Bids totaled $35 billion for a 2.69 cover, the highest since February 2013. The ratio was also higher than May's 2.09 and the 2.35 average.
Indirect bidders, which include foreign central banks, took 51.8 percent, the largest since 30-year bonds were re-introduced in 2006. The bond's indirect bids were also better than last month's 40.4 percent and 41.1 percent average.
"The demand for long-term Treasuries is going to be there," said Michael Chang, interest rate strategist at Credit Suisse in New York. "If yields drift a little higher from here, back up to the recent high end of the range of 2.75 percent (for the 10-year note), buyers would come in,"
Chang added that the rally in Treasuries was also helped by tensions in Iraq, which propelled oil prices higher.
Sunni Islamist rebels, who took over Iraq's second-biggest city Mosul earlier this week, surrounded the country's largest refinery in the northern town of Baiji on Thursday and extended their advance south toward Baghdad.
In afternoon trading, benchmark U.S. 10-year notes were up 15/32 in price to yield 2.584 percent, from 2.641 percent late on Wednesday. Yields hit one-week lows of 2.579 percent.
U.S. 30-year bonds were up more than a point to yield 3.408 percent, after hitting one-week troughs of 3.404 percent.
Yields also inched lower earlier after unimpressive U.S. retail sales and jobless claims data.
Data showed on Thursday that U.S. retail sales rose less than expected in May and first-time applications for unemployment benefits increased last week. The numbers were not big shockers and seemed unlikely to alter the timing of the Federal Reserve's first rate increase in the post-financial crisis era.
"It's still kind of a muddle-through scenario for the U.S. economy, which in general is still constructive for Treasuries," said Stanley Sun, rate strategist, at Nomura Securities in New York. "Yields are rich, but as long as we don't see the data bouncing back, there's no reason to sell." (Editing by Tom Brown)