TREASURIES-Slip in Asia as investors book profits

* Bonds slip on Japan share gains, investor profit-taking

* Worries persist on economy, market strains, Fannie/Freddie

* Two-year US swap spread widens back to near 100 bps

* Hedge funds eye steepening trades

By Eric Burroughs

TOKYO, Aug 18 (Reuters) - U.S. Treasuries slipped in Asia on Monday in light trade, getting nudged lower as Japanese stocks posted solid gains and as some portfolio managers took advantage of last week's rise to book profits.

Activity was limited, and traders said the performance of stocks would likely dictate whether benchmark yields stay near a one-month low with many market players on summer holidays.

Worries about the global economic outlook, the health of U.S. mortgage financing companies Fannie Mae and Freddie Mac, as well as ongoing strains in money markets all underpinned Treasuries.

The two-year U.S. swap spread USD2YTS=RR -- a gauge of financial system risk -- has widened back to near 100 basis points for the first time since early July when the fears about the government-sponsored enterprises (GSEs) reached a fever pitch.

"The GSEs and the weaker banks are still quite vulnerable," said fixed-income strategists at Deutsche Bank in a note to clients.

Benchmark 10-year notes US10YT=RR dipped 3/32 in price to yield 3.857 percent, up a basis point from late U.S. trade on Friday. Two-year notes US2YT=RR were flat to yield 2.404 percent, up a basis point.

The Deutsche strategists said they favoured positions betting on a steeper yield curve as tight lending conditions, the deteriorating labour market and falling oil suggest the Fed could resume cutting interest rates.

The curve between two- and 10-year yields was steady at 145.4 basis points but has had trouble steepening beyond the 150 basis point threshold in the past month.

A trader at a European bank in Tokyo said hedge funds were looking for opportunities to put on yield curve steepening positions.

Monday's economic data includes the National Association of Home Builders housing market index for August, as investors look for more clues on whether the battered property sector is starting to bottom out. ECONUS

Signs of stability in the housing market are crucial for improving the outlook not just for the economy, but also for valuations on mortgage-related securities and thus the health of the banking system and GSEs, analysts say.