* Fed launches third big round of stimulus until jobs outlook better * Treasury sells $13 billion in 30-year bonds * U.S. jobless claims rose more than expected due to storm By Richard Leong and Luciana Lopez NEW YORK, Sept 13 (Reuters) - U.S. government debt prices erased early gains to sink sharply on Thursday after the Federal Reserve announced a third big round of stimulus to jump-start the sluggish economy. Treasury prices had advanced earlier in the day but slumped after the Fed said it would buy $40 billion of mortgage debt per month and continue to purchase assets until the outlook for jobs improves substantially. Some analysts said the program was less than the market had expected from a third round of quantitative easing, or QE. "The Fed has under-delivered here. This not full-blown QE3. They have a lot of flexibility with this statement," said Anthony Valeri, a fixed income Strategist at LPL Financial in San Diego. "The long end of the bond market is weaker because there were expectations of a longer-dated Treasuries purchase announcement from the Fed. That's why we are seeing a reversal here after a pretty good 30-year bond auction," he added. The U.S. Treasury Department sold $13 billion of 30-year bonds earlier in the day, in what analysts said was a strong auction. Traders are now watching for the latest Fed economic forecasts at 2 p.m. (1800 GMT) and a press conference with Fed Chairman Ben Bernanke at 2:15 p.m. (1815 GMT). Thirty-year bonds were 1-6/32 lower to yield 2.98 percent, after the yield briefly pierced 3 percent for the first time in about four months. The latest figures on U.S. jobless claims and producer prices did not cause much market reaction. The data largely reinforced the view of low employment growth and inflation. First-time filings for jobless benefits totaled 382,000 last week, higher than what economists had forecast. The Labor Department blamed the larger than expected weekly increase on Tropical Storm Isaac. At the same time, the agency said producer prices rose 1.7 percent in August, the biggest monthly increase since June 2009, but the core rate which excluded volatile energy and food prices grew 0.2 percent, in line with estimates.