TREASURIES-Slip in Asia as stocks advance

* Treasuries slip as stock gains dampen safe-haven demand

* Grim econ outlook weighed against expected supply increase

By Shinichi Saoshiro

TOKYO, Jan 5 (Reuters) - U.S. Treasuries slipped in Asia on Monday as gains in regional stock markets dampened demand for safe-haven government debt.

Treasuries extended losses from Friday, when they plunged in the wake of a rally on Wall Street.

Tokyo's Nikkei stock average .N225 advanced 2.1 percent on Monday, the first trading day of the year, to hit a two-month high, buoyed by the jump in U.S. shares on Friday. [.T]

Still, the 10-year note's yield remained within sight of the five-decade low of 2.04 percent struck last month on a flight-to-quality rally driven by the global financial crisis.

The benchmark 10-year Treasury note US10YT=RR fell 12/32 in price to yield 2.40 percent, up about 4 basis points from late U.S. trade on Friday.

But analysts said Treasury yields could continue rising in the near term instead of easing back towards five-decade lows, especially after dismal economic data only gave fleeting support to the bond market on Friday.

The Institute for Supply Management said on Friday that its index of national factory activity fell to a 28-year low in December as the deepening recession took a heavy toll on the manufacturing sector. [ID:nN02360428]

Treasuries gained briefly on the grim data but were eventually driven lower by Wall Street's sharp gains.

"The bond market is becoming numb to poor economic indicators. It is no longer a revelation that the U.S. economy is in bad condition," said Yasutoshi Nagai, chief economist at Daiwa Securities SMBC.

"Market reaction to bleak payrolls data could thus be limited. Investors are beginning to realise that the (10-year note's) sharp drop towards the 2 percent yield was overdone as they look to rebalance their portfolios," Nagai said.

The closely watched U.S. employment data will be released on Friday.

Prospects of the U.S. economy sinking deeper into recession will remain bond-supportive in the long term, but analysts say this is a factor that has to be balanced with the negative aspects of increased debt issuance.

The U.S. government is expected to issue between $1.5 trillion and $2 trillion of debt in 2009 to pay for its massive financial system rescue efforts.

The market will face its first note auctions of the year at a three-year offering on Wednesday and a 10-year tender on Thursday.

The two-year Treasury note US2YT=RR dipped 1/32 in price to yield 0.840 percent, up by about 2 basis points. (Editing by Chris Gallagher)