TREASURIES-Longer bonds fall on auctions, issuance fears

* Govt to sell $16 bln 10-yr, $30 bln 3-yr notes this week

* Auction announcement steepens longer bonds' losses

* Longer-dated yields hit highest since mid-December

* Proposed stimulus plan also weighs on bond prices

By John Parry

NEW YORK, Jan 5 (Reuters) - Longer-maturity U.S. Treasuries prices fell steeply on Monday, extending the previous session's sell-off as auctions later this week highlighted prospects for a swelling supply of government debt, analysts said.

The government debt market's tumble reflects analysts' deepening fears that Treasuries now form a price bubble that will pop as some $2 trillion of supply inundates the $5 trillion market this year.

On Monday, the U.S. Treasury said it would sell $16 billion reopened 10-year notes and $30 billion 3-year notes this week. These sizes were broadly in line with market analysts' forecasts, but served to underscore this year's looming surge of debt issuance to fund the government's sundry rescue efforts for the financial system.

The 30-year Treasury bond US30YT=RR fell nearly three full points in price, pushing its yield up to 2.92 percent, up from a record low near 2.52 percent in December.

"The backup in yields shows a growing sentiment toward questioning the lower rate environment we are in right now," said George Goncalves, chief Treasury/TIPS and agency strategist with Morgan Stanley in New York.

The growing tide of government debt supply "is competing against other supply which is offering higher yields at this start of the year," and may draw flows out of Treasuries, he said.

Earlier, the benchmark 10-year Treasury note's yield, which moves inversely to its price, briefly rose to 2.51 percent. This was 47 basis points above a five-decade low hit on Dec. 18 at a time when investors were buying government debt amid the persistent global financial crisis, foundering economy and for year-end book balancing.

"Treasuries have come off so hard so fast in what was a very illiquid market; the 10-year went back up and tested a very significant (yield) level which was 2.50 percent," said Marty Mitchell, head of government bond trading at Stifel Nicolaus & Co. in Baltimore, Maryland.

"We have seen a 45 basis-points sell-off in 10-years over two sessions, so it is not unreasonable to expect a short-covering bid (to) come back into the market," Mitchell added.

Three-month Treasury bill yields edged up to 9 basis points after trading at or just below zero in late December as panicked investors bought the paper, essentially giving the government interest-free loans in return for sheltering their money.

Despite the tentative sell-off in ultra-short dated government securities, deep-seated fears about the crippling blow the global financial crisis is dealing to the world economy could swiftly reignite a flight-to-quality stampede. That mass buying last year lifted Treasuries to their strongest performance since 1995.

For now, "supply always has a short-term influence on the market," said Lou Brien, market strategist with DRW Trading Group in Chicago, adding "and there has been some talk of the stimulus program by (President-elect Barack) Obama, and maybe that is also having an effect,"

Obama is seeking as much as $310 billion in tax cuts as part of a massive stimulus plan to counter what senior policy-makers warned could be a prolonged period of economic stagnation and deflation.

The 2-year Treasury note's price was up 1/32 for a yield of 0.81 percent US2YT=RR, from a record low near 0.61 percent in mid-December. (Reporting by John Parry; Editing by Andrea Ricci)