TREASURIES-Bonds rally; pass first auction test

* First of week's record bond auction slate goes well

* Fed policy statement Wednesday an event risk for market

* Weaker U.S. housing data helps safe-haven bonds (Updates after auction)

By Burton Frierson

NEW YORK, June 23 (Reuters) - U.S. Treasury debt prices rose on Tuesday as the market repositioned itself a day ahead of the Federal Reserve's policy statement, gaining additional support from a strong kick-off to the week's record bond auctions.

The week's record $104 billion in supply issuance started with exceptionally strong demand for the $40 billion issue of two-year notes.

Overall demand, measured by the bid-to-cover ratio, hit its highest in nearly two years, while a key gauge of interest by foreigners and large institutional investors was nearly twice its usual average.

The bond auction came in the wake of data showing sales of previously-owned homes in the United States were weaker than expected in May, pointing to a sluggish recovery from the severe economic recession, which helped the debt market overcome some supply worries. For details, see [ID:nN231016]

"It's a recognition of a stagnating economy," said Jessica Hoversen, fixed income market analyst at MF Global Research in Chicago.