* Long-dated debt underperforms as flattening trades pause
* Treasury to sell $32 bln two-year notes
* Fed to buy $1 bln - $1.25 bln bonds due 2036-2044
NEW YORK, March 25 (Reuters) - U.S. Treasuries prices fell on Tuesday with longer-dated debt underperforming, pausing a four-day trend that has seen shorter-dated debt weaken faster than longer bonds on speculation that the Federal Reserve may raise interest rates sooner than expected. Two-year and five-year notes have been the worst performers since Federal Reserve Chair Janet Yellen said Wednesday that the central bank could raise rates six months after its current bond-buying program ends, suggesting a potential hike could happen as early as spring of 2015. That trend paused on Tuesday, however, as investors evaluated whether the recent yield increases will be enough to draw buyers to $96 billion in new short-and intermediate-dated debt. The Treasury will sell $32 billion in two-year notes on Tuesday, $35 billion in five-year notes on Wednesday and $29 billion in seven-year notes on Thursday, in addition to $13 billion in reopened two-year floating rate notes on Wednesday. Investors also reduced some flattening trades as they waited on new data that will give signs about the strength of the economy. "We've moved a lot since Yellen's press conference last Wednesday. The flattener is a crowded trade, you are seeing people taking off some positions for event risk," said Charles Comiskey, head of Treasuries trading at Bankof Nova Scotia in New York. U.S. single-family home prices rose in January and slightly beat expectations, according to S&P/Case-Shiller home price data released on Tuesday. The Conference Board's consumer confidence index, new home sales and the Richmond Fed's manufacturing and service sector data are due at 10:00 am EDT (1400 GMT). Two-year note yields fell to 0.44 percent, after trading as high as 0.47 percent on Monday, the highest since September and up from 0.34 percent before Yellen's remarks. Five-year note yields dropped to 1.74 percent, after increasing to 1.77 percent on Monday, the highest since Jan. 9. Benchmark 10-year notes fell 7/32 in price to yield 2.76 percent, up from 2.74 percent late on Monday, and 30-year bonds dropped 23/32 in price to yield 3.60 percent, down from 3.57 percent. One large flattener trade was seen in U.S. bond futures on the Chicago Board of Trade on Tuesday in spite of the general trend. At 3:05 CT (0805 GMT), 9,200 contracts of U.S. two-year Treasury futures traded at 109-22/32 while 5,200 contracts of 10-year bond futures traded at 123-17/32. The Fed will buy between $1 billion and $1.25 billion in bonds due from 2036 to 2044 on Tuesday as part of its ongoing purchase program.
(Additional reporting by Richard Leong; Editing by Chizu Nomiyama)