TREASURIES-Bonds gain as oil price slide increases disinflation fears

* Yields fall as oil prices, stocks fall

* Five-year TIPS breakevens lowest since Nov 2010

* Five-year, 30-year yield curve flattest in six years

By Karen Brettell

NEW YORK, Dec (Shanghai: 600875.SS - news) 12 (Reuters) - U.S. Treasury yields fell on

Friday as a relentless slide in crude oil prices hurt stocks and

increased demand for safe-haven U.S. debt on rising concerns

about falling inflation.

Brent crude dropped to a 5-1/2-year low of $62.75 a

barrel and was set for a weekly loss of more than 8 percent.

Falling oil has pressured energy stocks and increased

concerns about disinflation while slowing European growth has

pushed down yields of German and U.K. government debt to record

lows, making U.S. yields comparatively more attractive.

"The selloff in crude oil is really pressuring bond prices

higher ... it's extremely deflationary," said Tom di Galoma,

head of rates and credit trading at ED&F Man Capital Markets in

New York.

U.S. producer prices fell in November and were muted even

outside of energy, data showed on Friday, in a sign of weak

inflationary pressure that could point to persistent slack in

the economy.

Benchmark 10-year notes were last up 12/32 in

price to yield 2.13 percent, down from 2.18 percent late

Thursday. That compared to comparable German government bonds

that yield 0.63 percent and 10-year U.K. gilts

that yield 1.83 percent.

The yield gap between U.S. five-year Treasury

Inflation-Protected Securities and regular five-year Treasuries

fell as low as 1.20 percentage points, down more than 4 basis

points from late Thursday.

This inflation breakeven rate, which measures investors'

inflation expectations in the next five years, was the lowest

since September 2010, according to Reuters data.

Thirty-year bonds continued to outperform as investors

reached for higher yields offered by longer-dated debt. The

bonds have also gained as investors pull away from

intermediate-dated notes, which are the most sensitive to

interest rate increases.

Better U.S. economic data has added to bets that the Federal

Reserve is moving closer to raising interest rates next year.

"Investors are trying to get out of the very front end of

the market, and they are extending on the yield curve, and that

is exacerbating the move," said di Galoma.

Thirty-year bonds gained 25/32 in price to yield

2.78 percent, down from 2.83 percent. The gap (NYSE: GPS - news) between 5-year

note and 30-year bond yields flattened to 120

basis points.

(Additional reporting by Richard Leong; Editing by Jeffrey

Benkoe)