TREASURIES-Shorter-dated Treasuries up on Fed rate comments

*Short-dated Treasuries rise on long-term low rates

*Long-dated Treasuries dropped on stocks, supply worries

*Treasury prices to trend lower

By Mary Angela Rowe

NEW YORK, July 1 (Reuters) - Shorter-dated Treasury prices rose on Wednesday after a top Federal Reserve official said benchmark rates could remain low for an extended period and weaker-than-expected jobs data reinforced views of a weak economy.

Long-dated Treasuries slumped on the opening day of the third quarter, as investors worried that low short-term rates could lead to inflation and a rally in stocks eroded the potential safety bid for longer-dated issues.

Anticipation of Thursday's bond sale announcement also weighed down the long end on concerns over the amount of new supply that may flood the market, analysts said.

The front-end of the Treasury curve, which is more sensitive to the market's outlook on the Federal Reserve rate policy, was supported by comments late on Tuesday from the president of the San Francisco Fed, Janet Yellen.

"It's not outside the realm of possibility that the Fed funds rate could stay at zero for the next couple of years," she said. For more, see [ID:nN30448165]

Two-year Treasury notes prices US2YT=RR rose 4/32 to 99-4/32. Their yield, which moves inversely to their price, fell to 1.05 percent from 1.12 percent late on Tuesday.

Benchmark 10-year prices,US10YT=RR declined 2/32 to yield 3.55 percent from 3.54 percent late Tuesday, while 30-year bonds US30YT=RR dropped 7/32, for a yield of 4.34 percent from 4.33 percent on Tuesday afternoon.

The steepening Treasury curve may be due to anticipation of next week's bond auctions, which will be announced on Thursday and will include 10-year Treasury Inflation Protected Securities, and three- and 10-year notes.

"It's going to be a tough auction to digest," said Richard Lee, managing director of fixed income at Wall Street Access, New York.

Worries of Treasury oversupply and consequent inflation have depressed long-dated bonds, and some investors are concerned that rate hikes, when they occur, may be sharp.

"Most people are expecting rates to go up," said Lee. "I would be shocked if the Fed started to raise rates any time soon, but there's a lot of pressure on the Treasury market and you can't keep rates down artificially forever."

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