* Wall Street rebound pares safe-haven bond holdings * U.S. yield curve flattens after lukewarm 2-year note sale * U.S. to sell $35 bln 5-year notes, $24 bln 1-year bills Tuesday (Updates market action, adds quote, table) By Richard Leong NEW YORK, March 26 (Reuters) - U.S. Treasury yields rose and the yield curve flattened on Monday following a lackluster two-year note auction, in a test of investor appetite following last week's strong run spurred by nervousness about a global trade war. The $30 billion two-year note supply, together with $51 billion in three-month bills and $45 billion in six-month bills, were part of this week's record high $294 billion of debt. The Treasury Department has ratcheted up its debt issuance to fund higher federal spending tied to a two-year budget deal that was approved in February, and to make up for an expected drop in revenues due to the massive tax overhaul enacted in December. The bond market was also under pressure on a recovery in Wall Street stocks on reduced worries about a trade war. "People are concerned with supply," said Thomas Roth, head of U.S. Treasury trading at MUFG Securities America in New York. "People are leaning on the short side with bonds, but you still have trade concerns." The yield on 10-year Treasury notes rose 2.4 basis points to 2.850 percent. It hit a six-week low of 2.792 percent on Friday. The modest selling in Treasuries on Monday was offset by lingering worries about trade tension between United States and its trading partners, although White House officials have aimed to soothe that anxiety, traders and analysts said. On Friday, China urged the United States to "pull back from the brink" after Trump said he planned tariffs on up to $60 billion in Chinese goods, and the Chinese commerce ministry warned that the country "doesn't hope to be in a trade war, but is not afraid of engaging in one." Then White House trade adviser Peter Navarro on Monday told CNBC television the United States was in talks with China in an effort to address its trade practices. Easing worries about a trade war propelled U.S. stock prices higher and reduced the safe-haven appeal of Treasuries. They also reduced bets the Federal Reserve might slow its pace of interest rate increases if equities were to deteriorate further, analysts said. This view curbed bidding at the latest two-year note auction and prompted fed traders to favor longer-dated Treasuries, flattening the yield curve. The yield gap on five-year and 30-year Treasuries flattened 2.1 basis points to 44.10 basis points. On Tuesday, the Treasury will sell $35 billion in five-year notes and $24 billion in one-year bills . Monday, March 26 at 1528 EDT (1928 GMT): Price US T BONDS JUN8 144-18/32 -0-5/32 10YR TNotes JUN8 120-104/256 -0-52/256 Price Current Net Yield Change (pct) (bps) Three-month bills 1.715 1.746 0.018 Six-month bills 1.8775 1.9213 0.010 Two-year note 99-240/256 2.2829 0.021 Three-year note 99-208/256 2.4407 0.031 Five-year note 99-236/256 2.6418 0.034 Seven-year note 99-216/256 2.7748 0.026 10-year note 99-40/256 2.8483 0.022 30-year bond 98-116/256 3.0794 0.005 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 33.00 0.75 spread U.S. 3-year dollar swap 27.00 0.00 spread U.S. 5-year dollar swap 14.75 0.00 spread U.S. 10-year dollar swap 3.25 0.50 spread U.S. 30-year dollar swap -15.25 0.50 spread (Reporting by Richard Leong; Editing by Andrew Hay and Tom Brown)