* Weak U.S. regional business data lift bond prices * Eyes on Greece, looming Spanish bank downgrades * U.S. 10-year note yield approaches 60-year lows * U.S. 10-year TIPS sale sets record negative yield By Ellen Freilich and Richard Leong NEW YORK, May 17 (Reuters) - U.S. Treasury debt prices rose on Thursday as disappointing data on regional U.S. business activity and worries about Greece's political turmoil and the health of Spanish banks stoked safe-haven bids. Yields on the benchmark 10-year Treasury note fell to their lowest levels in more than seven months and were within striking distance of 1.67 percent, the lowest yield in at least 60 years. "The trend in rates is down," said Paul Montaquila, vice president at Bank of the West's capital markets division, with $10 billion in assets under management. "A steady diet of news from the euro zone and the uncertainty from a lot of different angles helps price appreciation for U.S. government debt." The anxiety over the path of the economy and financial contagion in Europe spurred a liquidation of earlier bets on rising interest rates stemming from an improving global economy, analysts and traders said. On Thursday, Fitch downgraded Greece steeper into junk territory, citing the risk that the heavily indebted country might leave the euro zone. Such a move would likely result in widespread default on all Greek debt, the rating agency said. In the United States, the Federal Reserve Bank of Philadelphia said its index of business conditions in the U.S. Mid-Atlantic region unexpectedly fell in May. The report sparked worries about the economy and drove an early wave of Treasuries purchases, which steadily intensified. Safe-haven inflows drove up Treasuries prices with 30-year yields flirting with their lowest levels in five months. In the meantime, buyers of $13 billion worth of 10-year Treasury inflation-protection securities seemed motivated to scoop up cheap protection against inflation, which might surge once U.S. economic growth accelerates and major central banks begin to raise policy rates, analysts said. The Treasury Department sold the latest 10-year TIPS supply at a record negative yield of minus 0.391 percent with robust bidding from domestic and foreign central banks and investors. "It's not the negative yield that attracted investor. It was the pretty cheap inflation protection," said Michael Pond, co-head of interest rates strategy at Barclays Capital's, referring to the recent decline in the TIPS break-even rates. The 10-year TIPS break-even rate, a measure of investors' inflation expectations that the Fed monitors, was at 2.11 percent on Thursday, down from 2.43 percent in mid-March. While the TIPS auction attracted investors who sought cheap hedges against long-term inflation, much of the market's focus remains squarely on the political developments in Greece and whether an exit from the euro zone is inevitable. "The market is entirely consumed with what is going on in Europe and, in particular, Greece and what they are going to do with their upcoming election next month and whether they are going to remain in the European monetary union," said James Sarni, managing principal at Los Angeles-based Payden & Rygel, with more than $60 billion in assets under management. Greece will hold national elections on June 17. In the cash market, benchmark 10-year Treasury notes last traded up 18/32 at 100-15/32 in price for a yield of 1.70 percent, down 6 basis points from Wednesday. The 30-year, or long, bond was 2 points higher at 104-2/32, yielding 2.80 percent, down almost 10 basis points on the day. In the futures market, the June 10-year T-note contract closed up 11/32 at 133-24/32 after setting a contract high near 133-26/32.