* Bond prices up for fourth session
* Consumer spending data adds to recovery doubts
NEW YORK, June 26 (Reuters) - U.S. Treasuries yields dropped on Thursday as traders eyeing a possible slowing of American economic growth drove up prices for a fourth straight day. Yields of 10-year and 30-year Treasuries touched three-week lows as investors, already surprised on Wednesday by data showing the U.S. economy contracted more than previously thought in the first quarter, reacted to data showing short-of-forecast increases in U.S. consumer spending. The Commerce Department said May spending increased 0.2 percent. Spending, which accounts for more than two-thirds of U.S. economic activity, had been forecast to rise 0.4 percent after a previously reported 0.1 percent dip in April. After adjustments for inflation, consumer spending fell for a second straight month, suggesting spending this quarter could struggle to regain momentum. "Just at face value, the small increase in May suggests that spending is not going to be as healthy as people are hoping for," said Kim Rupert, managing director of global fixed income at Action Economics, San Francisco. "If the economy doesn't bounce back smartly from the 2.9 percent decline in Q1, then it looks like the Fed may be lower for longer still." Sharon Stark, chief fixed income strategist at D.A. Davidson, said bond trading was also affected by a Labor Department report showing new applications for state unemployment benefits slipped 2,000 to a seasonally adjusted 312,000 for the week ended June 21. The declining claims suggest a recent streak of payroll job gains above 200,000 is likely to be sustained, lending the economy enough momentum for inflation to start perking up. Yields on 30-year Treasuries fell as low as 3.339 percent, a level last touched on June 2. The bonds last traded to yield 3.3442 percent, up 22/32 in price. Benchmark 10-year notes were up 10/32 to yield 2.5232 percent after hitting a low of 2.518 percent, also a level last seen June 2.
(Reporting By Michael Connor in New York; Editing by Tom Brown)