CORRECTED - TREASURIES-Prices fall on supply fears, waning safety bid

(Corrects description of source in paragraph 12 to "industry source" from "a source familiar with the discussions")

* Prices fall as modest stock losses let safety bid wane

* Supply fears weigh; Treasury need to fund bailouts eyed

* September consumer sentiment jump hurt Treasury prices

* Weak retail sales gave Treasuries early, brief lift (Updates analysts' quotes, prices)

By Ellen Freilich

NEW YORK, Sept 12 (Reuters) - U.S. Treasury debt prices fell on Friday as fear that the Treasury's recent interventions in the financial sector would lead to more debt issuance weighed on prices.

A modicum of stability in the stock market also sapped the safe-haven bid for lower risk government debt.

Bonds rose early in the session when the government reported unexpectedly weak consumer spending in July and August, adding to the recessionary cast of the economy.

When stocks struggled back from steep early losses, however, bonds reversed themselves and turned lower.

Benchmark 10-year Treasury notes US10YT=RR fell 21/32 in price, their yields rising to 3.72 percent from 3.65 percent late on Thursday.

Two-year notes US2YT=RR, which typically benefit from any safe-haven bid, ended unchanged, yielding 2.22 percent.

Investors spent the day focusing on the state of U.S. financial companies and trying to divine the future of investment bank Lehman Brothers Holdings Inc LEH.N.

Lehman LEH.N executives, potential buyers and government officials struggled on Friday to craft a buyout plan, ahead of what is expected to be a series of intense discussions this weekend between Lehman and potential bidders.

Bank of America Corp (BAC.N) is widely seen as a leading contender, with British bank Barclays Plc (BARC.L) also considered a possibility.

"There was a fair amount of position squaring because we've been getting bank failures on Friday and workouts happening on Saturday and Sunday," said Kevin Giddis, managing director and head of fixed-income trading at Morgan Keegan in Memphis Tennessee.