* U.S. retail sales post surprise drop in June * Nagging worries about Europe feed safety bids * Eyes on Fed's Bernanke for clues on QE3 * Five-year yield hits record low at 0.59 pct * U.S. Fed buys $1.84 bln in longer-dated bonds By Richard Leong NEW YORK, July 16 (Reuters) - U.S. government debt prices rose on Monday, their yields flirting with historic lows, after data showing a surprise drop in domestic consumer spending fed bets a faltering economy would need more stimulus from the Federal Reserve. While these rockbottom yields are not enticing, most investors are simply too nervous about the global economy and the financial contagion from Europe to take much risk, analysts and traders said. "Treasuries at these low yields are not great trades. People are just being forced into them," said Brian Edmonds, head of interest rates at Cantor Fitzgerald in New York. Safe-haven demand for Treasuries was also supported by a decision from Germany's high court to delay its ruling on whether the euro zone's richest member can legally ratify Europe's permanent bailout scheme and the pact for fiscal discipline. This drawn-out legal process fed worries about European leaders' ability to manage their debt crisis, as borrowing costs for Spain, Italy and other struggling members of the euro-bloc hover at unsustainable levels. The main factor driving the market was a 0.5 percent fall in U.S. retail sales in June, marking a third straight month of decline. Economists had expected a 0.2 percent rise. This latest blight on the U.S. economy spurred bids for U.S. Treasuries, sending their yields broadly lower albeit on unusually light trading volume. Benchmark 10-year Treasury notes were trading up 14/32 in price at 102-25/32 for a yield of 1.445 percent, down 4.6 basis points from late on Friday. Earlier, the 10-year yield touched 1.442 percent, matching the lowest level going back to the early 1800s last seen on June 1, according to data compiled by Reuters. In the short-run, Treasury yields could probe even lower as further economic deterioration intensifies speculation the Fed will soon embark on more bond purchases to stimulate the economy, analysts said. "You got some pretty poor data. The market is anticipating more quantitative easing," Cantor's Edmonds said. The 30-year bond last traded 1-6/32 higher at 109-30/32 with a yield of 2.524 percent, 5.4 basis points lower than Friday's close. The 30-year yield touched a session low of 2.520 percent, within striking distance of a record low of 2.510 percent set on June 1. Among other maturities, the five-year yield hit a record low of 0.5786 percent, while the two-year yield fell to 0.2219 percent, matching its lowest level since Feb 1, according to Reuters data. A number of Fed officials recently seem to have laid the groundwork of more action from the U.S. central bank, although a few of them cautioned a third round of quantitative easing, nicknamed QE3, would be less effective than the previous rounds. Traders will monitor Fed Chairman Ben Bernanke's testimonies before two separate Congressional committees on Tuesday and Wednesday. They will scour for signs on whether the Fed is preparing for QE3 soon. "Bernanke's testimony will be important for clues about QE3. The Fed is not going to sit idly by," Cantor's Edmonds said. In the meantime, the Fed has been buying bonds in the open market with its Operation Twist that involves selling its short-term debt and buying longer-dated Treasuries. On Monday, the Fed bought $1.84 billion in U.S. government debt that matures in Aug 2022 to Feb 2031.