* U.S. consumer inflation remained muted in August * Foreigners resumed buying Treasuries in July * Investors add longer-dated bonds after Summers news-JPM * Fed buys $1.47 billion long-dated Treasuries By Richard Leong NEW YORK, Sept 17 (Reuters) - U.S. Treasury debt prices rose on Tuesday as investors awaited a decision from the Federal Reserve on a possible reduction of its bond-purchase stimulus and clues on how it might manage short-term interest rates. The Federal Open Market Committee, the U.S. central bank's policy-setting group, is widely expected to pare back its $85 billion monthly purchases of Treasuries and mortgage-backed securities at its two-day meeting, starting on Tuesday. The U.S. labor market, while improving, remains fragile with job growth running below the pace seen in prior economic recoveries. This might cause the FOMC to begin tapering by a modest $10 billion to $15 billion, analysts said. "The jobs market continues to grow, but at a pace that is less than ideal. Nonetheless, all indications are that the Fed is poised to announce tomorrow that they will begin to pare back their bond purchases," said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan. Government data showing inflation in check also supported bids for longer-dated issues. Rising inflation erodes bond values in the long run. Moreover, some bets that the Fed might delay tapering until later this year helped lift bond prices, analysts said. "The risk is skewed on a dovish outcome," said Anthony Valeri, fixed income strategist at LPL Financial in San Diego. "There's a chance they (the Fed) might not do anything at all. That'll be positive for the bond market." However, gains on Wall Street stocks and weaker German Bund prices kept a lid on bids for Treasuries, analysts said. Benchmark 10-year Treasury notes were trading 3/32 higher in price with a yield of 2.858 percent, down from 2.862 percent late on Monday, while two-year notes were little changed in price, yielding 0.384 percent. The 30-year bond was up 11/32 in price with a yield of 3.848 percent, down from 3.863 percent late Monday. Long-dated maturities were buoyed by the Fed's $1.47 billion purchases of Treasuries due February 2036 through August 2043 on Tuesday, which were part of its planned $45 billion of Treasuries purchases in September. Treasury yields held near their lowest levels so far in September after falling on Monday in the wake of news that Lawrence Summers, a former Treasury secretary and former top economic aide to President Barack Obama, withdrew from consideration as Federal Reserve chairman. The news on Sunday eased fears of more aggressive Fed policy tightening if he were in charge of overseeing the monetary policy of the world's biggest economy. With Summers out of the running, traders raised expectations that current Fed vice chair Janet Yellen would be Obama's nominee for the central bank's top job. Wall Street seems more comfortable with Yellen as the next Fed chair because she is expected to take a gradual approach to reducing stimulus and to raise interest rates as economic growth has stayed sub-par and inflation has remained benign, analysts said. The U.S. Labor Department said the consumer price index inched up 0.1 percent in August, less than the forecast 0.2 percent increase, while the National Association of Home Builders said its housing market index held steady at 58 in September, near eight-year highs despite the surge in mortgage rates this summer. Given this view about a fairly smooth transition in Fed leadership in a slow-growing economy, bond investors stepped back into longer-dated Treasuries in the latest week. In a poll of its Treasuries clients released on Tuesday, J.P. Morgan Securities said 21 percent of those surveyed on Monday said they held more longer-dated government debt versus their portfolio benchmarks, compared with 15 percent a week ago. Data showed foreign appetite for Treasuries returned in July after overseas investors dumped them in June during a dramatic bond market sell-off on worries about the Fed paring back its bond purchases later this year. But the longer-term state of the United States' finances remains questionable. The Congressional Budget Office said the federal deficit would grow to 6.4 percent of the domestic economy in 2038, versus 3.9 percent this year, due to rising costs for government programs for retirement and medical care.