* Philly Fed index drop soothes taper fears
* 10-year TIPS auction at 1 p.m. EST (1800 GMT)
* Drop in new jobless claims linked to holiday
* October Producer Price Index down 0.2 percent
NEW YORK, Nov 21 (Reuters) - U.S. Treasuries prices rose on Thursday after a weaker-than-forecast regional manufacturing index calmed fears about a December cutback in bond purchases by the Federal Reserve.
When a voting member of the Fed's policy committee said on Wednesday a December "taper" was still on the table, worries about the impact of reduced Fed purchases were revived, even though many dealers' official position is that the Fed will not cut back its buying until March 2014.
But those worries were soothed when the business activity index from the Philadelphia Fed came in weaker than expected, since weak economic data make a December tapering less likely.
"The Philly Fed was quite weak but the market was dramatically oversold," said Thomas di Galoma, co-head of fixed income rates at ED&F Man Capital in New York, explaining the market's ability to lift off on the Philly Fed index.
U.S. economic data released early in the session offered little ammunition for a December taper, however.
A drop in new U.S. jobless claims in the latest week and an October U.S. producer price index that deviated just slightly from forecasts had little perceptible market impact.
"The inflation picture is very subdued, and the risk of continued disinflation continues to be greater than risk of accelerating inflation," said Ward McCarthy, managing director and chief financial economist at Jefferies & Co. in New York.
The yield curve also flattened slightly after steepening to the point where the difference between short- and long-term yields was the steepest in more than two years. Since late July-early August 2011, a bid for safe-haven U.S. debt before that summer's standoff over the budget and debt ceiling began narrowing the gap between short- and long-term yields.
The benchmark 10-year Treasury note found support at 2.80 percent, the high yield from earlier this month before the curve steepening resumed.
The benchmark 10-year Treasury note was up 3/32, its yield easing to 2.79 percent.
The 30-year bond rose 10/32 in price, its yield easing to 3.90 percent.
On the supply front, a $13 billion auction of a reopened 10-year TIPS issue is set for 1 p.m. EST (1800 GMT).
This will be the second reopening of the 3/8 percent of 7/15/23 issue originally auctioned this past July.
The 10-year TIPS issue is currently trading around 0.620 percent amid "particularly tame" inflation expectations, said John Canavan, fixed income analyst at Stone & McCarthy Research Associates.
"The 5-year University of Michigan inflation expectations reading was just 2.9 percent in the preliminary November reading, for instance, right in line with the 2.7 percent to 3.0 percent range that has held since April 2009 except for a one month uptick to 3.2 percent in March 2011," he noted.
Traders are also positioning for next week's auctions of two-, five- and seven-year Treasury notes, Canavan said.
The U.S. Senate Banking Committee approved Janet Yellen's nomination to become the first woman to lead the Federal Reserve, sending it to the full Senate for a final vote.
The Senate does not plan to vote until after a two-week Thanksgiving Day holiday break.