By Chris Reese

NEW YORK, Jan 2 (Reuters) - U.S. benchmark 10-year Treasury

yields rose to the highest in over three months on Wednesday

after lawmakers approved a deal preventing a round of automatic

fiscal tightening that could have pushed the world's largest

economy into recession.

The Republican-controlled House of Representatives approved

a bill that will raise taxes on top earners, avoiding a 'fiscal

cliff' of $600 billion in tax hikes and spending cuts.

This prompted investors to move money out of safe-haven

assets such as U.S. government debt and into higher-yielding,

riskier assets, such as equities.

'The House passed the Senate's last minute deal overnight

... sparking a substantial risk-on move that has Treasuries on

the back foot,' said John Briggs, Treasury strategist at RBS

Securities in Stamford, Connecticut.

Benchmark 10-year Treasuries were trading 29/32

higher in price to yield 1.86 percent, marking the highest yield

since mid-September and up from 1.76 percent late Monday.

Thirty-year Treasury bonds were trading 1-30/32

lower in price to yield 3.05 percent, up from 2.95 percent late

Monday and also the highest since mid-September.

Yields may rise further if data, including the Institute for

Supply Management factory activity survey for December later on

Wednesday or the nonfarm payrolls report on Friday, show the

U.S. economy improving.

However, analysts said a massive selloff in U.S. debt was

unlikely. In addition to further fiscal tightening, lawmakers

must still agree in the next few weeks on raising the

government's borrowing limit.

'Higher tax rates will bring slower growth going forward and

(investors) view the recent selloff as a decent opportunity to

add duration,' said Tom di Galoma, managing director at Navigate

Advisors LLC in Stamford, Connecticut.

The Federal Reserve's loose monetary policy is also expected

to keep yields relatively subdued for a long period, especially

on short-dated paper.

(Additional reporting by Marius Zaharia in London; Edited by

Kenneth Barry)

((chris.reese@thomsonreuters.com)(+1 646 223

6073)(chris.reese.reuters.com@reuters.net))

Keywords: MARKETS USA BONDS/

(-------MARKET SNAPSHOT AT 8:56 a.m. EST (1356 GMT)------- March T-Bond 145-20/32(-1-28/32) March 10-Year note 131-32/32 (-26/32) Change vs Current Nyk yield Three-month bills 0.0575 (+0.01) 0.058 Six-month bills 0.12 (+0.01) 0.122 Two-year note 99-23/32 (-01/32) 0.267 Five-year note 99-27/32 (-09/32) 0.780 10-year note 97-32/32 (-27/32) 1.849 30-year bond 94-05/32 (-1-28/32) 3.050 DOLLAR SWAP SPREADS LAST Change U.S. 2-year dollar swap spread 13.00 (-0.50) U.S. 3-year dollar swap spread 12.50 (-0.50) U.S. 5-year dollar swap spread 11.00 (-0.75) U.S. 10-year dollar swap spread 4.75 (-1.00) U.S. 30-year dollar swap spread -17.25 (-0.50))

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