RPT-TREASURIES-Bond prices sag after dismal 30-year sale

(Repeats to add swaps data to table) (Updates prices, adds comments)

By John Parry

NEW YORK, Feb 7 (Reuters) - U.S. government debt prices sagged on Thursday in the biggest sell-off in four years as a dismal $9 billion auction of 30-year government bonds and recovery in stocks punished safe-haven Treasuries.

Bonds are seen as expensive after an almost nonstop seven-month rally, and long maturities are especially vulnerable given concerns about inflation pressures. The 30-year bond was on track for its worst daily performance since the Treasury started reissuing that maturity two years ago.

"I had been expecting a downtrade following the recent rally and thought that downtrade would begin with supply, because I don't think the levels here are safe enough relative to where inflation is," said Josh Stiles bond strategist and managing director with IDEAglobal in New York.

The $9 billion of 30-year bonds were sold at a bid-to-cover ratio, an indication of demand, of 1.82, which was below average. Indirect bidders, which include foreign central banks, took around 11 percent of the sale, well below average.

"It wasn't a very good auction and I think it surprised the participants," said Lou Brien, a strategist with DRW Trading Group in Chicago. With low foreign interest and a lighter-than-average bid-to-cover ratio, "this one can be characterized as poor," Brien said.

The 30-year bond's price, which moves inversely to its yield, dropped briefly by three full points after the auction, before coming off its lows to trade steeply down 2-12/32 in price for a yield of 4.49 percent, compared with 4.36 percent late on Wednesday US30YT=RR.

The benchmark 10-year Treasury note fell 1-2/32 in price for a yield of 3.74 percent US10YT=RR, against 3.60 percent late on Wednesday.

The bond market also struggled as stocks shrugged off earlier data releases that would normally be supportive of safe-haven fixed income prices.

"There is a seesaw effect between Treasuries and equities. The bears have been trying to push the stock market down and are seeing they may not be able to. The stock market is going up, so that pulls people out of Treasuries," said Doug Roberts, chief investment strategist with Channel Capital Research in Shrewsbury, New Jersey.

The Dow Jones industrial average traded up 0.64 percent at 12,280 points .DJI.

Pending sales of previously owned U.S. homes fell more than expected in December, pointing to tougher conditions for the beleaguered U.S. housing market.

In the labor market, new applications for U.S. unemployment benefits fell by 22,000 last week, but the number of workers remaining on jobless aid rose to its highest in more than two years, government data showed. For details, see [ID:nN07371319]. (Additional reporting by Burton Frierson, Chris Reese and Richard Leong; Editing by Jonathan Oatis)