TREASURIES-Long yields highest in 2 weeks, boosted by Yellen
* Yellen to continue to with Fed tapering plan
* Fed chair cautious overall, says labor recovery far from complete
* U.S. three-year note auction sees solid demand
NEW YORK, Feb 11 (Reuters) - Yields on long-dated U.S. Treasuries climbed to their highest in two weeks on Tuesday after Federal Reserve Chair Janet Yellen pledged to continue the bank's current strategy of reducing asset purchases despite a still unstable labor market.
U.S. stocks rallied, with investors fleeing safe-haven Treasuries, cheered by the fact that Yellen did not shock the market. She reiterated that the Fed will continue to trim monetary accommodation in measured steps despite the recent selloff in emerging markets.
In her first public comments as Fed chief, Yellen said it would take a notable change in the U.S. economic outlook - a significant deterioration in the job market, or if inflation does not rise over time - for the Fed to pause its tapering plan.
"What the market really heard was the positives of it, the idea that global volatility does not pose a problem to the U.S. outlook," said George Rusnak, national director of fixed income at Wells Fargo in Philadelphia.
"It seems like steady as she goes, which means that they continue tapering QE (quantitative easing)," Rusnak said. "The market is comforted and that's why you're seeing things back off a little bit in the Treasury market."
Benchmark 10-year Treasuries were last down 11/32 in price to yield 2.72 percent. Ten-year yields hit a high of 2.73 percent, its strongest level since Jan. 29.
Thirty-year bonds, meanwhile, fell 14/32 in price to yield 3.68 percent, after hitting two-week peaks of 3.70 percent earlier.
Five-year notes were down 7/32 in price to yield 1.52 percent, while seven-year notes were 9/32 lower with a yield of 2.17 percent.
With Yellen out of the way, the Treasury's auction of $30 billion U.S. three-year notes drew solid demand from investors, with a high yield of 0.715 percent versus 0.720 percent at the bid deadline. Total bids were $102.5 billion for a robust bid-to-cover ratio of 3.42, better than the 3.25 cover in January as well as the 3.32 average.
Indirect bidders, which include foreign investors, bought 42.0 percent of three-year note supply, much higher than the 28.0 percent last month and a 30.5 percent average. Purchases from indirect bidders were the highest since August 2011.
Market participants had expected the three-year note auction to go well anyway, especially since a JPMorgan client survey showed the highest percentage of outright shorts since June 10, so many had covered their short positions as well.
On Wednesday, the Treasury will sell the next tranche of this week's supply - $24 billion in 10-year notes. It's an auction that has seen a recent decline in direct bidder participation as well as weak performance.
Earlier in the session, interest rates on U.S. one-month Treasury bills fell to their lowest in more than a week after Republicans in the House of Representatives agreed to advance a "clean" bill on raising the debt limit before the government is expected to run out of cash.
House Democratic leaders suggested there will be "broad support" for such a bill.
On the open market, the one-month T-bill rate was last quoted at 0.05 percent.