TREASURIES-Long-dated bonds fall as agency sale draws buyers

*Longer-dated bonds hit as agency debt sale draws buyers

*Nearer-dated Treasures flat to up with safety bid

*Trade choppy amid inflation, housing cross-currents (recasts, updates prices, changes byline)

By Ellen Freilich

NEW YORK, Aug 19 (Reuters) - Longer-dated U.S. Treasury debt prices fell on Tuesday as a competing offer of debt by Freddie Mac (FRE.N) drew investors away from lower-yielding U.S. government debt.

The $3 billion debt sale by the mortgage finance giant alleviated some concerns that Freddie and Fannie Mae (FNM.N) might have trouble accessing capital outside of any emergency government backing.

A stock market slide inoculated short-dated Treasuries against losses, however, keeping shorter maturities popular with investors seeking protection from equity losses.

Benchmark 10-year Treasuries US10YT=RR slipped 6/32 in price for a yield of 3.84 percent from 3.82 percent late on Monday, while 2-year Treasury notes US2YT=RR rose 1/32, their yields easing to 2.32 percent from 2.33 on Monday.

"Treasuries (came) under pressure; you had that agency deal and guys were more than happy to put that trade on," said Sean Murphy, trader at RBC Capital Markets in New York.

Bond trade was choppy through much of the session after government reports said U.S. producer prices jumped at the fastest year-over-year rate in 27 years in July, while U.S. home building projects started last month fell to the lowest annual rate in more than 17 years.

The inflation rise was negative for bonds because inflation erodes the value of fixed-income securities.

Supportive for bonds, however, was news that home building projects started in July fell 11 percent to the lowest annual rate in more than 17 years.

"(You had) a very weak housing starts number coupled with a very high (producer price index) number, and the market (tried) to digest that," said Thomas di Galoma, head of U.S. Treasury trading at Jefferies & Co in New York.

July housing starts slightly exceeded Wall Street's estimates, but were still the fewest since March 1991. Building permits, an indicator of future construction, also fell.

"The fundamentals in housing are still poor," said Dresdner Kleinwort Securities economist Dana Saporta in New York.

The Labor Department's producer price index, which measures prices at the factory door, climbed 1.2 percent after a 1.8 percent gain in June. Prices excluding food and energy items jumped 0.7 percent in July, after a 0.2 percent June increase, the biggest monthly jump since November 2006.

However, analysts expect inflation to ease soon since oil prices have fallen about 20 percent from highs reached in July. That view was enunciated by Richmond Federal Reserve President Jeffrey Lacker who told Bloomberg TV on Tuesday that he expected inflation to "moderate in the coming months."

"We may be getting to a point here where inflation was yesterday's story," said Kevin Flanagan, fixed income strategist for global wealth management at Morgan Stanley in Purchase, New York.

(Additional reporting by John Parry and Chris Reese; Editing by Richard Satran)