* Strong U.S. new home sales data puts pressure on yields
* Demand high in five-year-note auction
* Fed buys $1.25 billion in treasuries maturing 2038 to 2043
NEW YORK, Feb 26 (Reuters) - U.S. Treasury debt prices inched up on Wednesday after the release of better-than-expected data on new home sales and following strong demand for a sale of five-year notes.
U.S. single-family home sales surged to a 5-1/2-year high in January, surprising analysts after data last week showed housing starts fell by the most in nearly three years due to severe winter weather.
Demand was strong for a five-year note auction, with indirect bidders dominating and prices rising almost one basis point throughout the auction, traders said. The Treasury sold $35 billion in five-year notes at a high yield of 1.53 percent. The broader bond market rallied into the auction and added to those gains after the sale.
"We have seen a reasonable bid emerge despite the stronger-than-expected new home sales report and a bid for the equity market, which we typically would expect to create a bit of selling in Treasuries," said Ian Lyngen, a senior government bond strategist at CRT Capital.
Ten-year notes were up 7/32 in price, sending yields down to 2.687 percent. Thirty-year yields were up 4/32 in price, pushing yields down to 3.649 percent from Tuesday's close of 3.661 percent.
The U.S. government bond market enjoyed a brief safe-haven rally after Russian President Vladimir Putin put combat troops on high alert for war games near Ukraine, following the toppling of Russian ally Viktor Yanukovich as president, traders said.
Benchmark 10-year note yields have held in 2.65 to 2.78 percent range for two weeks and traders see the debt as unlikely to move out of it until there is fresh information about the health of the U.S. economy.
The Fed bought $1.25 billion in Treasuries maturing between 2038 and 2043 as part of its continuing bond-buying program.
Volumes were low overnight, but investors closely monitored moves in China's yuan, which has shed more than 1.5 percent since mid January, as the central bank has urged state-owned banks to sell the currency.