TREASURIES-Bonds gain as consumer sentiment sags

(Updates prices, adds comment, adds byline)

* Weak consumer sentiment data boosts bonds

* Earlier housing starts rebound forgotten

* Year-end U.S. rate hike still priced in

By John Parry

NEW YORK, May 16 (Reuters) - Treasury debt prices rose on Friday after a surprisingly weak sentiment reading reawakened fears that consumer spending could slide.

Earlier an apparent glimpse of hope in the crumbling housing market had dealt bonds a brief blow, but concern over the economy grew again with release of the confidence data. Stocks also fell, adding to the bid for safe haven government bonds.

"The Treasury market right now has a very, very good bid," said John Spinello, Treasury bond strategist with Jefferies & Co. in New York. "The consumer confidence number accelerates concerns about spending, with markets somewhat ignoring the inflation expectations."

The Reuters/University of Michigan survey showed that U.S. consumer sentiment fell to its lowest in nearly three decades. But inflation expectations within the report edged up. The longer maturities initially did not react, apparently on the view that soaring food and gasoline costs would mostly crimp economic activity. U.S. crude oil surged to new records above $127 per barrel.