TREASURIES-Edge lower in Asia as stocks, oil prices rise

TOKYO, Oct 29 (Reuters) - U.S. Treasuries edged lower in Asian trading on Monday, weighed down by a rise in Asian stock markets and oil prices surging to record highs, as players grow cautious ahead of the Federal Reserve's policy meeting later in the week.

Treasuries were flat to modestly lower on Friday as a stock rally cooled safe-haven demand for low-risk bonds and investors moved to the sidelines, taking steam out of a two-week rally driven by anticipation of more monetary easing from the Fed.

The Fed's policy makers meet Oct. 30-31, with market players expecting the Fed to lower the benchmark federal funds rate a quarter percentage point to 4.5 percent in order to forestall a housing-led economic slowdown.

U.S. interest rate futures markets see a rate cut this week as virtually a done deal and a follow-up in December as highly likely.

"There are a lot of events this week, with the Fed and economic data including jobs and gross domestic product, which could affect the prospect for the Fed's future policy course," said Minako Iida, a fixed income strategist at Barclays Capital.

"Players continue to eye the stock market as there has been a trade-off, with funds drawn from bonds to equities when stock markets rise," Iida said.

A possible rise in inflation concerns as oil prices surge to record highs and moves by central banks to diversify their foreign reserves could dampen demand for U.S. Treasuries and put upward pressure on yields over the longer term, as investors were growing wary of current low yield levels, she said.

The 10-year Treasury note yielded 4.408 percent <US10YT=RR>, little changed from late U.S. trade on Friday.

The two-year Treasury yield inched up to 3.789 percent <US2YT=RR> from 3.768 percent in late U.S. trade on Friday.