TREASURIES-2-year yields hit nearly 9-year high after data backs higher inflation


* 2-year yields hit highest in nearly 9 years

* U.S. import prices rise to highest since June 2016

NEW YORK, Oct 17 (Reuters) - U.S. 2-year Treasury yields rose to their highest level since November 2008 on Tuesday after the strongest reading on U.S. import prices in more than a year pushed inflation expectations higher. Yields on 5-year notes touched their highest level since Oct. 6 and most Treasuries hit session highs following the release of the data. The Labor Department said import prices jumped 0.7 percent last month, the biggest gain since June 2016, after an unrevised 0.6 percent rise in August. Treasury yields were lower earlier in the day and saw a reversal at around 8 a.m. EST (1200 GMT) and accelerated their move higher after the data release at 8:30 a.m. EST. "It looks like the move started before the data, but that definitely accelerated it," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott LLC in Philadelphia. "Market participants are kind of hanging on to a thread of hope about inflation numbers." The strong import prices, as well as export prices, which came in at double the prediction of economists surveyed by Reuters, doubled down on a theme from Monday when traders had sold U.S. government debt on the expectation of higher interest rates and inflation. A report that U.S. President Donald Trump had been impressed participants as favoring higher interest rates than current Federal Reserve Chair Janet Yellen, pushed the 2-year note to nearly nine-year highs Monday. Trump is expected to announce his choice to take over the Fed next year in the near future. LeBas said Taylor's "resurgent candidacy" had also helped to underpin the push higher in yields on Tuesday. Jim Vogel, interest rate strategist at FTN Financial in Memphis, also pointed to a cooling in an earlier buying spree of European bonds. German bund yields fell to their lowest levels since Sept. 12 while British gilts hit their lowest since Sept. 25 during remarks from Bank of England Governor Mark Carney who said that uncertainty had dragged investment and that productivity had picked up less than expected. That move had largely unwound around the time U.S. yields began their push higher.

The yield on U.S. 2-year notes rose to 1.554

percent, highest since Nov. 3, 2008.

Benchmark 10-year note yields rose to 2.329

percent, but retraced much of the move higher in later trading. They were last down 1/32 in price to yield 2.314 percent.

(Reporting by Dion Rabouin; Editing by Susan Thomas)