Treasury prices fell in light trading as progress in solving Japan's nuclear crisis and Western air strikes in Libya

NEW YORK, March 21 (Reuters) - Investors aren't snapping up safe-haven U.S. debt with the same gusto this week, but analysts said on Monday many in the market were hesitant to take bold positions until global conditions calmed.

Treasury prices fell in light trading as progress in solving Japan's nuclear crisis and Western air strikes in Libya reduced safe-haven demand, with a brief, accelerated sell-off following news the Treasury Department will liquidate its mortgage-backed securities portfolio.

But Treasury yields may be stuck in a range for now, as violence escalated in Yemen and Syria, while the outcome of military action in Libya remains uncertain, and workers at Japan's stricken nuclear plant struggled to keep spent fuel and nuclear rods cool.

'Stocks are up, and oil is up. How much more can stocks go if oil prices keep rising?' said John Briggs, U.S. interest rate strategist at RBS Securities in Stamford, Connecticut.

'I'm not sure that a lot of large players really feel that the near-term situation is clear enough to put a lot of risk on the table.

The day's most dramatic price action came after the Treasury Department said it would begin selling its $142 billion portfolio of agency-guaranteed mortgage-backed securities acquired in 2008 and 2009 amid the financial crisis -- at a rate of around $10 billion a month.

'The initial thought was perhaps this is the beginning of a tightening move,' said Marty Mitchell, chief market technician at Stifel Nicolaus in Baltimore. 'However, it's coming from Treasury, not the Federal Reserve, and I think a lot of participants, after the initial reaction, had a chance to think about it and realized that it's not really a statement on interest rates at all.

'Our market just tends to want to keep an underlying bid, given all the uncertainty surrounding the Middle East and North Africa and Japan and the sovereign debt crisis in Europe,' Mitchell said, adding that he saw the next important support level for the 10-year yield at 3.42 percent and then a further support at 3.47 percent or 3.48 percent.

The 10-year yield fell as low as 3.14 percent last week, and is down from as high as 3.77 percent in early February. Mitchell said the yields were the outer limits of the wider range in which Treasuries appeared to be rooted.

Two year notes were last down in 2/32 price to yield 0.64 percent, up from 0.59 percent late Friday, and five-year notes fell 12/32 in price to yield 2.03 percent, up from 1.93 percent.

With no new Treasury supply planned for the week, and few releases of major economic data, however, concern over Japan and Libya could continue to dominate near-term price moves.

'The world situation has been the real driver' of Treasuries, said Alan De Rose, head trader in government trading and finance at Oppenheimer and Co in New York.

Meanwhile, concerns over the U.S. budget deficit could also return to the fore in the coming weeks as the government is expected to hit its debt ceiling by the end of May.

'If I have an upside concern in the near term, it's if it looks like the forward momentum on the medium-term plan for the debt and the deficits were falling apart,' said Leslie Barbi, who manages about $30 billion in fixed income assets at RS Investments.

'They are talking about doing some significant things, including taking on Social Security and Medicare and some of the programs that take up a significant part of the federal budget,' said Oppenheimer's De Rose.

'To the extent that they can tackle those and come up with some credible ideas, I think they will be viewed very positively by the market,' he added.