TREASURIES-Bonds fall as pending supply concern weighs

* Treasuries weakened by worry over upcoming supply

* Higher stocks, stimulus hopes also sap safety bid

* Investors will watch data on factories, services

By Chris Reese

NEW YORK, Jan 6 (Reuters) - U.S. Treasury debt prices fell on Tuesday, with benchmark yields rising to the highest in three weeks as a pending mass of new debt supply again took its toll, especially on the longer end of the Treasury curve.

Some optimism over a massive stimulus package from the incoming Obama administration also had investors willing to take on more risk, boosting stock futures and reducing the safe-haven appeal of government debt.

"Treasuries still being driven lower this morning on Obama's proposed $775 billion stimulus package and massive supply that will result," said Tom Di Galoma, Treasuries strategist at Jefferies & Co in New York.

Benchmark 10-year Treasury notes US10T=RR were trading 28/32 lower in price for a yield of 2.57 percent compared with 2.48 percent late on Monday. The benchmark yield was trading at its highest since mid-December.

The two-year note US2YT=RR was trading 5/32 lower with its yield rising to 0.86 percent from 0.78 percent.

The Treasury is set to auction $166 billion of debt this week alone, including $8 billion of new 10-year Treasury Inflation Protected Securities, or TIPS, on Tuesday.

Debt issuance is ramping up to help pay for all of the various economic rescue programs from the government. But the supply will heavily dilute the market, and with yields still not far above the lows reached in mid-December, investors said Treasury debt prices were taking a hit.

"Bonds continue their downtrend," said Andrew Brenner, senior vice president at MF Global in New York.

Debt supply won't be the only thing on investors minds on Tuesday however, with data on November factory orders and a gauge of the health of the massive U.S. services sector for December.

Later on Tuesday, the release of minutes from the Federal Open Market Committee's December policy meeting should also garner much attention.

At the conclusion of that two-day meeting the FOMC lowered target overnight lending rates between banks to a range of zero to 0.25 percent from the previous recommended target rate of 1.00 percent.

Five-year Treasury notes US5YT=RR were trading 13/32 lower for a yield of 1.76 percent from 1.67 percent late on Monday, while the 30-year bond US30YT=RR was trading 1-26/32 lower for a yield of 3.11 percent from 3.03 percent.

Monday marked the first time the long bond had finished above 3.00 percent since the middle of December. (Reporting by Chris Reese; Editing by Chizu Nomiyama)