TREASURIES-Bonds tumble on debt supply concerns

* Concerns over raft of new debt supply again hits bonds

* Prices lower despite evidence of struggling employment

* Wave of supply includes Wednesday's 3-year note auction

* Corporate bonds also drawing on Treasury bid (Adds strategist comment, updates prices)

By Chris Reese

NEW YORK, Jan 7 (Reuters) - U.S. Treasury debt prices fell on Wednesday amid renewed concerns that a spate of new debt supply will dilute the market, despite falling stocks and more evidence of a dire U.S. employment situation.

A total of $166 billion of new government debt supply is on tap this week, with more expected in order to help feed various programs intended to prop up the economy. The size of this week's issuance is the third largest ever.

Investors fear that huge doses of new debt issuance will have to boost Treasury note yields, which move inversely to prices and which currently hover not far off 50-year lows.

Sinking stocks and more evidence of falling employment on Wednesday were not enough to offset wariness over pending debt supply.

"There is still a concern with supply coming up," said Dominic Konstam, head of interest rate strategy at Credit Suisse in New York.

Benchmark 10-year Treasury notes US10T=RR were trading 15/32 lower in price for a yield of 2.51 percent compared with 2.46 percent late on Tuesday, while the two-year note US2YT=RR traded 3/32 lower with its yield rising to 0.82 percent from 0.78 percent.

Treasuries briefly pared losses after the ADP Employer Services report said U.S. private employers shed 693,000 jobs in December, which was far more than economists had forecast and raised expectations the government's non-farm payrolls report, which will be released on Friday, will show a big drop in employment for December. For details, see [ID:nN07470568]

"All that (ADP) does for me is confirm my expectations that we are going to get another doozy of a number on Friday," said David Coard, head of fixed-income sales and trading at The Williams Capital Group in New York, adding: "There are still supply concerns out there."

Included in this week's wave of debt supply is the auction of $30 billion of three-year notes US3YT=RR on Wednesday afternoon, which is a record large-sized single issuance for the maturity. On Thursday, the Treasury will auction $16 billion of reopened 10-year notes.

Treasuries were also weighed as investors turned to better-performing investments like corporate debt, analysts said. "There are definitely competing products," Konstam said.

U.S. corporate bonds have returned about 4.6 percent over the past month, while high-yield bonds posted returns of about 15 percent in the period, according to Merrill Lynch data.

Five-year notes US5YT=RR traded 6/32 lower in price for a yield of 1.70 percent from 1.66 percent late on Tuesday, while the 30-year bond US30YT=RR slid 1-14/32 to yield 3.07 percent, up from 3.00 percent. (Reporting by Chris Reese; editing by Gary Crosse)