* Investors eye FOMC meeting and statement, expect dovish tone
* Oil prices recover, drive investor interest in stocks
* Treasury sells $26 billion of 2-year notes to solid demand (New throughout, updates market action, adds quotes)
By Tariro Mzezewa
NEW YORK, Jan 26 (Reuters) - U.S. Treasury debt prices were slightly higher on Tuesday as the Federal Reserve began its two-day meeting, with investors anticipating the meeting would conclude with a dovish statement by the central bank saying it will not raise rates as many times as it hoped it would this year.
Treasury price gains were limited by a recovery in oil prices, which paired with corporate earnings, drove investor appetite for equities. Oil prices were lifted by hopes that OPEC and non-OPEC producers may be edging closer to a deal to tackle one of the biggest supply gluts in decades.
“Usually when oil and stocks are up like they are right now, Treasury prices fall, but because of a lot of things including the Fed meeting, today’s Treasury increase is very very modest,” said Cheng Chen, interest rates strategist at TD Securities in New York.
The seesaw trading action has been frequent since the start of 2016 as jittery investors have been piling into U.S. government debt whenever stock and oil prices fall.
The Treasury Department sold $26 billion of 2-year notes to solid investor demand.
With little U.S. domestic data due this week, investors are focusing on the Federal Reserve’s two-day policy meeting which begins later in the day.
“While the 2y auction was strong, the Treasury market is up rather marginally, indicating likely hesitation ahead of the meeting,” said Matthias Rusinski, U.S. rates strategist at UBS in New York, in an email.
Though the U.S. central bank is not expected to raise interest rates this week, investors will parse the statement from the meeting for details on the impact of the turmoil seen in markets this year.
“We suspect the Fed will reference market volatility similar to the way they did in September and that they’ll mention falling inflation expectations,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott LLC in Philadelphia.
The benchmark 10-year note was last up 7/32 in price to yield 1.999 percent, down from 2.022 percent late Monday.
The 30-year bond was up 10/32 in price to yield 2.786 percent, down from 2.802 percent late on Monday.
On Wall Street, major stock indexes were positive, with the benchmark S&P 500 stock index was last up 1.05 percent, led by recovering oil prices and strong earnings reports. (Editing by Lisa Shumaker)