TREASURIES-Yields slip as stocks sell off

* Stocks slump as investors seek safety in government debt

* Two-year yield stays near February 2025 highs after touching 4.236% Monday

* Core PCE seen rising 0.3% in May, with annual rate forecast at 3.4%

* Treasury to auction $183 billion in notes this week, starting with $69 billion Tuesday

By Karen Brettell

NEW YORK, June 23 (Reuters) - U.S. Treasury yields fell on Tuesday as a stock market selloff drove investors toward the safety of government debt. Short-dated yields, however, held near 16-month highs as traders continued to weigh the prospect of a more hawkish Federal Reserve. The Nasdaq and the S&P 500 fell to over one-week lows, dragged down by sharp losses in semiconductor stocks as investors braced for a more hawkish U.S. central bank and scrutinized growing debt-funded AI spending. Treasury yields have climbed since the Fed held interest rates steady last Wednesday, after policymakers signaled they expect to raise borrowing costs later this year amid persistent inflation running above the central bank's 2% target.

"The committee spoke pretty loudly in that summary of economic projections with a 'dot plot' that really made a material hawkish turn," said Michael Lorizio, head of U.S. rates and mortgage trading at Manulife Investment Management. Chicago Fed President Austan Goolsbee also said on Monday that with the labor market on solid footing, his focus is on whether stubbornly high inflation will prove lasting or gradually ease as the impact of elevated tariffs fades and tensions in the Middle East stabilize. U.S. President Donald Trump said on Tuesday Iran had agreed to nuclear inspections into "infinity," despite Tehran's denials, and that unfrozen Iranian assets would be used to buy humanitarian supplies from the United States.

The 2-year note yield, which typically moves in step with Fed interest rate expectations, fell 3.8 basis points to 4.192%. It reached 4.236% on Monday, the highest since February 2025.

The yield on benchmark U.S. 10-year notes fell 2.8 basis points to 4.479%.

The yield curve between two- and 10-year notes steepened to 28.7 basis points.

In an early sign of new Fed Chairman Kevin Warsh's influence, last week's policy statement was notably stripped of any forward guidance on future rate moves, instead simply stating the rate decision and reaffirming the Fed's commitment to maintaining "ample reserves in the banking system."

With less guidance to lean on, analysts now expect economic data to play an even bigger role in shaping Fed expectations. The week's main release will be the PCE inflation report on Thursday.

"We're going to get a stark reminder of the potential need for higher rates when we get PCE on Thursday, and that's something that's quite uncomfortable for the Fed," said Lorizio.

Core prices in the PCE report are expected to have risen 0.3% in May, putting the annual rate at 3.4%. Headline inflation is forecast at 0.5% for the month and 4.1% year-over-year.

The Treasury Department will sell $69 billion in two-year notes on Tuesday, kicking off $183 billion in short- and intermediate-term coupon-bearing note auctions this week. It will also sell $70 billion in five-year notes on Wednesday and $44 billion in seven-year notes on Thursday.

(Reporting by Karen Brettell; Editing by Andrea Ricci )