(Recasts, adds quotes, updates prices)
* Prices gain as Fed more dovish than expected
* Short covering seen fueling rally, 2-year notes 'special'
* Yield curve steepens, intermediate debt outperforms
* Fed to buy $2.25 bln-$2.75 bln notes 2021-2024 Thursday
NEW YORK, June 18 (Reuters) - U.S. Treasuries prices gained on Wednesday, after the Federal Reserve took a more dovish stance on monetary policy than some had expected at its June meeting, a day after data showed that inflation pressures are rising. Prices had tumbled on Tuesday after a higher-than-expected consumer price inflation indicator led investors to prepare for the possibility that the Fed will be open to raising rates sooner than some had thought. But the U.S. central bank didn't play up the inflation increase and kept its statement little changed from its previous meeting, helping bond prices gain. "There were a lot of people that thought there would be a lot more mention of inflation there, that there would have been a more hawkish tone, but on balance it came out fairly dovish," said Aaron Kohli, an interest rate strategist at BNP Paribas in New York. Bonds gained before the statement, and the yield curve steepened, with traders attributing much of the price move to investors covering bearish bets that bonds are likely to weaken. Two-year notes traded "special" on Wednesday, or at negative interest rates, in the repurchase agreement market (repo), indicating a number of investors were short the notes. "We're seeing a little bit of short covering," said Jason Rogan, a managing director in Treasuries trading at Guggenheim Securities in New York. Treasuries erased price gains immediately after the statement was released in choppy trading, before resuming their rally. "The statement itself was utterly predictable," said Brian Jacobsen, chief portfolio strategist, investments group at Wells Fargo Funds Management in Menomonee Falls in Wisconsin. "More interesting was the timing as far as when they will start raising rates. There was an ever so slight shift to being more dovish." Benchmark 10-year notes gained 12/32 in price to yield 2.61 percent, just lower than before the statement. Five-year notes rose 7/32 in price to yield 1.71 percent, little changed from before the statement. The yield curve between 5-year notes and 30-year bonds steepened back to 171 basis points, where it had traded before the statement. The Fed hinted at a slightly faster pace of interest rates increases starting next year, but suggested rates in the long-run would be lower than it had indicated previously. The central bank slashed its forecast for U.S. economic growth to a range of between 2.1 percent and 2.3 percent from an earlier forecast of around 2.9 percent, but expressed confidence the recovery was largely on track. It also reduced its monthly asset purchases from $45 billion to $35 billion a month, divided between $20 billion of Treasury securities and $15 billion of mortgage-backed debt, as widely expected. The Fed will buy between $2.25 billion and $2.75 billion in notes due from 2021 to 2024 on Thursday.
(Additional reporting by Rodrigo Campos; Editing by Nick Zieminski)