TREASURIES-Bonds slip as falling oil stokes stock rally

* Oil's fall helps stocks, crimps bonds

* Fannie Mae loss gives fleeting boost to Treasuries

* Some safe-haven bids on Russia-Georgia military action

* Major dollar rally a talking point (Updates prices, adds comments)

By John Parry

NEW YORK, Aug 8 (Reuters) - Short-maturity U.S. Treasury debt prices slipped on Friday as the safe-haven bid faded on a stock market rally driven by falling oil.

Crude CLc1 slipped below $116 per barrel, hitting the lowest levels since May and alleviating some concerns that consumer activity would ebb further and drag on company earnings. Stocks' jump in response drew flows away from safer assets such as government bonds.

"What we are seeing now is oil off, equities are up and that's dragging Treasury yields up," said T.J. Marta, fixed-income strategist with RBC Capital Markets in New York.

The two-year Treasury note's price US2YT=RR was down 2/32 for a yield of 2.47 percent, versus 2.43 percent late Thursday.

Earlier Friday, Treasury prices edged up, buoyed by safe-haven bids due to weak earnings results from Fannie Mae and reports of conflict between Russia and Georgia.

However, gains were capped as traders took profits after the previous session's rally in long bonds, the biggest in four years.

Even though U.S. mortgage finance giant Fannie Mae (FNM.N) posted a bigger-than-expected quarterly loss and slashed its dividend, government bonds did not make sustained gains because investors had braced for the possibility of a dismal result, analysts said.

"We saw a little bit of profit taking overnight and then Treasuries managed to gain a little ground after Fannie Mae reported losses," said Kim Rupert, managing director, global fixed-income analysis with Action Economics LLC in San Francisco.

Slight bidding for safe-haven Treasuries also came "in a flight-to-quality type trade" after reports of military action in Georgia, said Rupert.

A top official in Georgia's National Security Council said on Friday that Russia had invaded Georgia and the two countries were "very close" to war, if not already at war.

U.S. government bonds held steady after a fairly benign reading of U.S. wage inflation. A report showed non-farm unit labor costs rose 1.3 percent in the second quarter, below economists' consensus forecast for a rise of 1.5 percent.