UPDATE 1-U.S. T-bill rate falls on signs of debt limit progress
* House to vote on 1-year debt cap increase later Tuesday
* Strongest bidding for 1-month T-bill supply in 3 weeks
NEW YORK, Feb 11 (Reuters) - The interest rate on U.S. one-month Treasury bills fell to their lowest level in over a week on Tuesday on signs of progress to raise the federal debt ceiling, which would avert the government from delaying payments on its debt.
Investors have feared that late payments on Treasuries by even a day would wreak havoc on markets and their confidence in United States and the dollar's status as the premier reserve currency.
House of Representatives Speaker John Boehner told reporters on Tuesday that Republicans plan to advance a "clean" debt limit bill to the House floor, or one that is not tied to fiscal concessions from Democrats. House Democratic leaders suggested there would be "broad support" for such a bill.
The move reassured financial markets that Washington will not repeat the same tense scene of last October, when President Barack Obama and top Republican lawmakers fought down to the wire before they reached a temporary deal to suspend the debt ceiling until last Friday.
The Treasury Department has been using emergency measures to raise cash for the government to meet its debt, payrolls and other obligations through end of February.
News of the House vote bolstered bidding at an $8 billion auction of one-month debt supply on Tuesday with overall demand rebounding to its highest level in three weeks. Prices and yields, or rates, on bonds move in opposite directions.
"The market has been pleased with the action from Washington so far," said Aaron Kohli, interest rate strategist with BNP Paribas in New York.
The House was set to vote on a proposal to increase the government statutory borrowing cap, currently at $16.7 trillion, through March 2015 later Tuesday.
It is not known yet when the Senate will vote on a debt ceiling increase and how many Senate Republicans will support a "clean" bill.
For now, legislative movement in the House was an encouraging sign for investors, some of whom had shunned holding debt that will mature or have scheduled interest payments in late February through late March.
Interest rates on T-bills due in that period rose to 0.100 percent early Monday, which was the highest level since mid-October, before falling on reports that House Republicans did not plan to not engage in another debt ceiling fight with Obama and the Democrats.
"Today is all about reversing the hump in T-bill rates. The market is starting to write off a 'technical default,"' Kohli said.
On the open market, the one-month T-bill rate last traded at 0.05 percent, down 2 basis points from late on Monday, according to Reuters data. It traded briefly below 0.04 percent earlier.
As for the latest one-month debt supply, the Treasury said it paid investors and dealers an interest rate of 0.03 percent. Last week, it sold $8 billion of one-month bills at an interest rate of 0.13 percent, which was the highest level since Oct. 16.