TREASURIES-Inch up in Asia as credit, economy worries support

* Credit and economy worries keep investor bids for safety

* Foreign investors prefer Treasuries, shun mortgage/agency

* Eyes on U.S. consumer price index

By Chikako Mogi

TOKYO, Aug 14 (Reuters) - U.S. Treasuries inched up in Asia on Thursday as worries about renewed weakness in the financial sector and a slowdown in U.S. growth kept intact investors' preference for the safety of government debt.

Investors were shunning U.S. mortgage and agency bonds on renewed credit fears, particularly as Freddie Mac (FRE.N) has struggled to raise $5.5 billion in fresh capital despite the U.S. government's pledge to offer capital to it and fellow mortgage finance giant Fannie Mae (FNM.N).

Banks were charging higher interest on home loans, weighing on a housing market that shows no signs of bottoming out, and on consumer sentiment, putting a drag on the whole economy.

A recent slide in oil prices has eased concerns about inflation, shifting investors' focus back to credit jitters and weakness in the economy, traders said.

"Investors are more concerned about financial institutions further shrinking their balance sheets by selling assets, which hurts the markets, than inflation," said a senior dealer at a Japanese trust bank.

"The U.S. housing market is still falling and consumption is weakening. There is steady investor demand for Treasuries as a flight-to-quality destination," he said.

The dealer said some Asian investors were seen shedding U.S. mortgage bonds while others including Japanese largely stayed on the sidelines. U.S. Treasuries were also likely to benefit from buying needs by investors who gauge their performance by benchmark indices, as the month-end duration was expected to be extended by around 0.2 years at the end of August, the dealer said.

September T-note futures TYv1 climbed 2.5/32 to 115-15.5/32, after hitting a one-month high of 115.27.5/32 on Wednesday.

Key 10-year notes US10YT=RR edged up 2/32 in price to yield 3.939 percent, down about one basis point from late U.S. trade.

Two-year notes US2YT=RR were unchanged in price to yield 2.475 percent, also down 1 basis point from late U.S. trade on Wednesday.

Traders were eyeing U.S. consumer price index data due out later in the day, as oil prices rose more than $3 per barrel to around $116 CLc1 on Wednesday and some analysts pointed to a creeping reemergence of inflation concerns.

Economists' median forecast is for headline consumer prices to have accelerated to 5.1 percent year-on-year in July from 5.0 percent the month before.

A report on Wednesday showed U.S. import prices rose 1.7 percent in July and were 21.6 percent higher than a year earlier in the biggest 12-month gain in 26 years, weighing on bond prices. (Editing by Michael Watson)