* Prices extend gain after strong five-year note sale
* Fears over Ukraine add safety bid for bonds
* Fed buys $1.25 billion in Treasuries maturing 2038 to 2043
* Treasury to sell $29 bln seven-year notes on Thursday
By Marina Lopes
NEW YORK, Feb 26 U.S. Treasuries debt prices accelerated gains on Wednesday following strong demand for a sale of five-year notes, helped by safe-haven demand as Russia put troops on alert for war games near Ukraine.
Demand was strong for a five-year note auction and the debt sold around a basis point lower in yield than where the notes had traded before the sale. The Treasury sold $35 billion in five-year notes at a high yield of 1.53 percent.
Worries over instability in Ukraine overcame better-than-expected data on U.S. single-family home sales, which surged to a 5-1/2-year high in January, surprising analysts after news last week that housing starts fell by the most in nearly three years due to severe winter weather.
"We have seen a reasonable bid emerge despite the stronger-than-expected new home sales report and a bid for the equity market, which we typically would expect to create a bit of selling in Treasuries," said Ian Lyngen, a senior government bond strategist at CRT Capital.
Ten-year notes were up 9/32 in price, sending yields down to 2.667 percent. Thirty-year bonds were up 18/32 in price, pushing yields down to 3.630 percent from Tuesday's close of 3.661 percent.
Benchmark 10-year note yields have held in a 2.65 to 2.78 percent range for two weeks and traders see them as unlikely to move out of it until there is fresh information about the health of the U.S. economy.
The Fed bought $1.25 billion in Treasuries maturing between 2038 and 2043 as part of its continuing bond-buying program.
The Treasury will sell $29 billion in seven-year treasury notes on Thursday in its final sale of coupon-bearing debt this week.