TREASURIES-Prices jump on dovish view of Fed statement

* Inflation linked bond yields fall

* Long bonds trade at record-low yields

* Fed funds rates still project first rate increase in Oct (Adds late price rally, Fed details and comment)

By Michael Connor

NEW YORK, Jan 28 (Reuters) - U.S. Treasury debt prices rose sharply on Wednesday, knocking 30-year yields to a record low after the Federal Reserve said inflation was running below forecasts and suggested international concerns would be part of their decision on changing rates at coming meetings.

Thirty-year bonds were last up 2-18/32 in price to yield 2.29 percent after touching a new low of 2.273 percent, according to Thomson Reuters data. The 10-year note rallied 30/32 to drop its yield to 1.72 percent.

The Fed, in its statement, said the U.S. economy was still expanding, but noted that inflation was further below their longer-run objective and that market-based inflation measures had fallen substantially. That was a more negative assessment of inflation pressures than in December.

In addition, the Fed also said its determination on rates down the road would include readings on "international developments," which it had not mentioned in December.

"Just the inclusion of international developments, that's probably perceived as dovish and the bond market is rallying probably on that," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.

"International developments will likely slow them down than speed them up. They introduce that as a risk."

According to CME Fed Watch, odds on an interest-rate increase in October stand at 60 percent, down from 62 percent on Tuesday.

Other traders and analysts said the jump in Treasuries was also driven by short-covering spurred by the Fed's statement after a two-day policymakers' meeting.

The yield on 10-year Treasury Inflation Protected Securities, or TIPS, fell after the Fed statement, dropping to 12.1 basis points from 18.4 basis points on Tuesday. Those securities react to anticipated inflation, and have been falling for several weeks.

"People are buying (30-year Treasuries) on the lower inflation expectations, although they were pretty upbeat on growth overall," said John Canally, investment strategist and economist at LPL Financial (NasdaqGS: LPLA - news) in Boston.

Thirty-year Treasuries are consistently favored by many non-U.S. investors because of America's brighter economic promise and fatter yields compared to other big economies.

The yield curve between five-year notes and 30-year bonds narrowed and last stood at 106 basis points, compared with a three-month average of 156.6, according to Thomson Reuters data.

"It's duration grab," said Tom di Galoma, head of rates and credit trading at ED&F Man Capital Markets in New York. "Lower inflation and inflation expectations are good for long-dated bonds."

Prices on the five-year Treasury note rose 24/32 to yield 1.52 percent, while the two-year was up 2/32 to yield 46 basis points. (Reporting by Michael Connor in New York; Editing by James Dalgleish and Alan Crosby)