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TREASURIES-U.S. T-bill rates fall on plan to raise debt limit

* Democrats float idea to raise debt ceiling for 3 months

* Benchmark 10-year yields hold near 10-month low

* Fed Vice Chair Fischer resigns, to leave in October

(Updates market action, adds quote) NEW YORK, Sept 6 (Reuters) - Interest rates on U.S. Treasury bills tumbled on Wednesday on investor hopes U.S. lawmakers would reach a deal to raise the federal borrowing limit before the government is expected to run out of cash at the end of September. Investors have been concerned that a potential block on the Treasury's ability to sell more debt could result in a partial government shutdown, or even a default that could roil financial markets. Congressional Democratic leaders said on Wednesday they would support a plan to tie government aid to help those affected by Hurricane Harvey to a three-month extension to suspend the nation's borrowing limit, currently at $19.9 trillion. Although Republican House Speaker Paul Ryan called that idea "ridiculous" his Senate counterpart, Mitch McConnell, said it is critical for Congress to pass disaster relief, prevent a default and keep the government operating. Investors had dumped Treasury bills that mature in October on worries the government would delay repaying them if the debt ceiling were not increased in time. At 12:02 a.m. (1602 GMT), interest rates on T-bills due on Oct. 5 fell over 17 basis points to 1.075 percent, its lowest level since Thursday. T-bill rates on other October issues fell anywhere from 2 basis points to 13 basis points, Reuters data showed. "We might be getting some signs on a debt ceiling deal in Washington," said Tom Roth, head of U.S. Treasury trading at MUFG Securities America in New York. Longer-dated Treasury yields held steady with benchmark 10-year yield hovering at a near 10-month low, underpinned by jitters about further nuclear weapon tests by North Korea and concerns about Hurricane Irma, a powerful storm heading toward the southern United States. The 10-year Treasury yield fell to 2.054 percent earlier Wednesday, the lowest since Nov. 10. Separately, Federal Reserve Vice Chair Stanley Fischer, said on Wednesday he will step down from his position on or around Oct. 13 for personal reasons, ahead of the expiration of his term as vice chair next year. September 6 Wednesday 12:03PM New York / 1603 GMT Price

US T BONDS DEC7 157-6/32 0-6/32 10YR TNotes DEC7 127-116/256 0-8/256 Price Current Net Yield % Change

(bps)

Three-month bills 1.0325 1.0496 0.011 Six-month bills 1.1325 1.1548 0.013 Two-year note 99-234/256 1.294 0.004 Three-year note 100-80/256 1.391 0.000 Five-year note 99-228/256 1.6479 0.000 Seven-year note 99-224/256 1.8942 -0.003 10-year note 101-164/256 2.0665 -0.003 30-year bond 101-92/256 2.6836 -0.005

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 22.25 0.50

spread

U.S. 3-year dollar swap 19.50 0.50

spread

U.S. 5-year dollar swap 7.00 0.25

spread

U.S. 10-year dollar swap -4.75 0.50

spread

U.S. 30-year dollar swap -34.50 1.00

spread

(Reporting by Richard Leong; Editing by Frances Kerry)