* Wall Street rally reduces bids for lower-risk govt bonds

* Better-than-expected ISM, other data add to bearish tone

* Mortgage players sell bonds in response to rate spike

* Ten-year yield on track for biggest rise in 8 months (Adds TIPS performance)

By Richard Leong

NEW YORK, June 1 (Reuters) - U.S. Treasury debt prices tumbled on Monday as encouraging economic data fueled a rally on Wall Street and reduced investor demand for less risky government debt.

Heavy selling by mortgage players in response to a recent spike in home loan rates intensified the bond sell-off. The 10-year note yield posted its biggest one-day spike in eight months and flirted with a six-month high set last week.

Nagging inflation worries stemming from the government's $2 trillion in net debt issuance this year added to the downward pressure on Treasury prices, analysts said.

"People are worried about bonds free-falling," said James Caron, head of global rates research at Morgan Stanley in New York.