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* Bonds down on euro-zone hopes and looming supply

* Euro zone’s tough fiscal talk boosts stocks, hits bonds

* $24 billion in 10-year notes up for auction at 1 p.m.

Burton Frierson

NEW YORK, May 12 (Reuters) — U.S. Treasuries prices fell on Wednesday as the euro zone’s latest attempts to stanch its budget crisis helped stabilize stock markets and traders braced for a 10-year bond auction.

Spain announced sweeping austerity measures on Wednesday while the European Commission sought unprecedented power to scrutinize national budgets, helping equities and damping the appeal of Treasuries as a global safe haven. [TOPWRAP]

Bonds have had a volatile week as investors tried to determine whether last weekend’s $1 trillion package to quash the debt crisis would stabilize the euro zone after months of uncertainty over Greece’s fiscal condition.

Adding to the mix, there are $78 billion worth of U.S. Treasury bond auctions this week. The latest in those debt offerings comes at 1 p.m. on Wednesday as $24 billion of 10-year notes are up for sale.

People like to see that fiscal responsibility talk coming out of Europe, but I think it’s more that we’re watching equities and they’re stable and we have a lot of supply, said Rick Klingman, managing director of Treasury trading at BNP Paribas in New York.

The benchmark 10-year note US10YT=RR fell 9/32 in price, yielding 3.57 percent versus Tuesday’s close of 3.53 percent.

Benchmark 10-year yields, which move inversely to price, hit a five-month low of 3.27 percent during last week’s safe-haven rally as investors feared Greece’s debt problems would spread to the euro zone’s fiscally troubled members.

The 30-year long bond US30YT=RR was last down 18/32, yielding 4.46 percent versus Tuesday’s close of 4.42 percent. Long bond yields hit a seven-month low last week of 4.06 percent.

A $16 billion auction of long bonds on Thursday will be the last of this week’s three sales of coupon securities.

Analysts said the current selloff should help attract bidders for the remaining sales after a fall in prices aided an auction of three-year notes on Tuesday.

WHICH SUPPLY, WHAT DEMAND?

Bond investors have wrestled with the thorny issue of the burgeoning U.S. national debt for more than a year now and briefly appeared to question the longevity of the United States’ prized AAA credit rating in May 2009.

Recently, however, bond sentiment improved as the Treasury decreased some issue sizes, which was taken as a signal that the worst-case budget scenario was not coming true.

The first reductions made were a $2 billion cut to this week’s three-year note auction and a $1 billion decrease in the 10-year sale.

The Greek debt crisis only added support to that, with investors seeking safe havens.

Now, however, there is further optimism on this week’s quarterly refunding bond sales because of disruptions the euro zone fears have caused in corporate bond issuance.

So far this month, companies have issued just $5.4 billion of high-grade bonds. That is well below forecasts made at the beginning of the month for $80 billion to $100 billion, according to IFR, a Thomson Reuters company.

My immediate thought was that less corporate supply means more demand for today’s 10-year note, said William O’Donnell, head of U.S. Treasury Strategy at RBS Securities in Stamford, Connecticut.

Indeed, there are also $1 billion fewer Treasury 10-year notes to go around relative to the last refunding. I think today’s slightly shrunken 10-year auction will go fine. (Editing by Padraic Cassidy )