TREASURIES-Prices up on Iraq safety buying; U.S. data limits gains

(Adds details, quote, updates prices)

* Bonds gain on safety bid on Iraq, Ukraine tensions

* Prices pare gains on solid U.S. economic data

* Fed meeting on Wednesday in focus

* Fed buys $2.70 bln notes due 2018, 2019

By Karen Brettell

NEW YORK (Frankfurt: HX6.F - news) , June 16 (Reuters) - U.S. Treasuries prices rose on

Monday as fighting in Iraq and Ukraine increased demand for

safe-haven bonds, though solid U.S. economic data limited gains.

Worries about Iraq were intensifying after Sunni insurgents

seized a mainly ethnic Turkmen city in northwestern Iraq on

Sunday after heavy fighting, solidifying their grip on the north

after a lightning offensive that threatens to dismember Iraq.

Russian natural gas exporter Gazprom (MCX: GAZP.ME - news) also reduced

supplies to Ukraine on Monday after Kiev failed to meet a

deadline to pay off its gas debts in a dispute that could

disrupt supplies to the rest of Europe.

"There was a reasonable flight-to-quality bid overnight with

the developments in Iraq and Gazprom, so global equities were

under a fair amount of pressure and that gave a bid to longer-

dated Treasuries," said Ian Lyngen, senior government bond

trader at CRT Capital in Stamford, Connecticut.

"We've given some of that up in the wake of the industrial

production numbers," Lyngen added.

U.S. manufacturing output rose solidly in May as production

increased across the board, bolstering expectations that

economic growth will rebound strongly this quarter.

Benchmark 10-year notes were last up 2/32 in

price to yield 2.60 percent, after earlier falling as low as

2.58 percent. Thirty-year bonds gained 10/32 in

price to yield 3.40 percent, after earlier falling to 3.35

percent

A gauge of manufacturing in New York state also rose in

June, advancing as a read on new orders climbed to its highest

level in nearly four years, the New York Federal Reserve said in

a report on Monday.

Confidence (BSE: CONFIDE.BO - news) among U.S. homebuilders rose for the first time

this year as builders felt better about the prospects of selling

new homes, an industry gauge showed on Monday.

Investors this week are focused on the Federal Reserve's

monetary policy statement on Wednesday, when the U.S. central

bank is expected to announce it will continue paring its bond

purchase program. The Fed is also expected to cut its growth

projections.

"One of the key things that people will focus on is what

they will do with their summary of economic projections," said

Gennadiy Goldberg, an interest rate strategist at TD Securities

in New York.

"They will downgrade their growth expectations, but they

will shift their unemployment rate projections lower because the

unemployment rate has gone down faster than expected, so that

should be fairly positive," Goldberg said.

The Fed bought $2.70 billion in notes due in 2018 and 2019

on Monday as part of its ongoing purchases.

(Editing by W Simon; and Peter Galloway)