TREASURIES-Shorter-dated U.S. yields firm as Fed meets

* U.S (Other OTC: UBGXF - news) . 2-year yield hit post-Brexit peak on jitters about

Fed

* Citi economic surprise index rises to highest in 21 months

* Bidding at latest 5-year note sale weakest in 7 years

* Weaker U.S. stock, oil prices support longer-dated yields

(Updates market action, adds quote)

By Richard Leong

NEW YORK, July 26 (Reuters) - U.S. Treasury short-dated

yields held firm on Tuesday with the two-year note yield

hovering at its highest in more than four weeks as the Federal

Reserve began a two-day meeting that may produce clues on the

timing of a possible interest rate hike.

Short-to-medium government yields touched session highs

following a poor $34 billion five-year note auction, which

fetched the weakest bidding in seven years.

Longer-dated Treasury yields, however, fell on safehaven

demand tied to lower U.S. stock and oil prices.

Shorter-dated maturities lagged longer-dated issues on

jitters whether the Fed would consider raising rates by year-end

on signs the economic expansion remains on track.

"If the Fed sees things better, you could be under water

right away," said Gennadiy Goldberg, interest rate strategist at

TD Securities in New York.

Worries about Britain's vote to leave the European Union and

the drag it would have on the world's biggest economy have faded

amid evidence of resilience in the U.S. housing and labor

sectors.

Citi Research's barometer on U.S. economic data surprises

reached its highest level in over 21 months following

better-than-expected readings on new home sales and consumer

confidence on Tuesday.

Still, traders expect the U.S. central bank to leave its

target range on policy rates at 0.25 percent to 0.50 percent due

to global risks and softness in domestic manufacturing.

Interest rates futures implied traders saw a 48 percent of a

U.S. rate hike by year-end, compared with 52 percent on Monday

and 45 percent a week ago, CME Group (Kuala Lumpur: 7018.KL - news) 's FedWatch program showed.

The Federal Open Market Committee, the Fed's policy-setting

group, will release its latest policy statement at 2 p.m. (1800

GMT) on Wednesday.

The benchmark 10-year Treasury yield was down 1

basis point at 1.565 percent, while the 30-year yield

slipped about half basis point to 2.283 percent.

The two-year yield, which is sensitive to

traders' view on Fed policy, was little changed at 0.762 percent

after reaching 0.7780 percent, its highest since the Brexit

referendum.

Treasury yields initially fell in step with European

government debt, which has seen yields stuck in negative

territory due to purchases by the European Central Bank.

The Dow and S&P 500 were modestly lower on the day.

U.S. oil futures settled down 0.5 percent at $42.92 after

falling to its lowest level since April on worries about

oversupply.

July 26 Tuesday 3:20PM New York / 1920 GMT

Price

US T BONDS SEP6 171-27/32 0-9/32

10YR TNotes SEP6 132-24/256 0-8/256

Price Current Net Change

Yield % (bps)

Three-month bills 0.3175 0.3222 -0.008

Six-month bills 0.415 0.4216 -0.010

Two-year note 99-250/256 0.7618 -0.001

Three-year note 99-170/256 0.8649 0.003

Five-year note 99-240/256 1.138 0.000

Seven-year note 99-220/256 1.3963 -0.005

10-year note 100-144/256 1.5628 -0.010

30-year bond 104-184/256 2.2808 -0.008

DOLLAR SWAP SPREADS

Last (bps) Net Change

(bps)

U.S. 2-year dollar swap 21.25 -4.00

spread

U.S. 3-year dollar swap 17.75 -2.00

spread

U.S. 5-year dollar swap 3.25 -1.75

spread

U.S. 10-year dollar swap -10.00 -0.75

spread

U.S. 30-year dollar swap -43.75 -0.75

spread

(Reporting by Richard Leong; Editing by Dan Grebler and Diane

Craft)