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TREASURIES OUTLOOK-U.S. two-year yield hits 9-year peak; curve flattest in 10 years

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* Yield curve flattens for 4 straight days

* TIPS auction was soft as expected.

NEW YORK, Nov 16 (Reuters) - U.S. Treasury two-year yields

hit a nine-year high on Thursday as risk appetite recovered

globally and a batch of neutral to solid economic reports put the Federal Reserve on track to raise interest rates in 2018.

The rise in two-year yields pushed the curve to its flattest in a decade. The yield curve has declined for four straight days.

"This (flattening) is a reflection that the Fed is still going ahead with raising rates even though inflation remains quite low," said Lou Brien, market strategist at DRW Trading in Chicago.

The Federal Reserve has raised borrowing costs twice this year and is expected to boost rates again next month. It has forecast three rate hikes in 2018.

A surge in U.S. industrial production in October, plus data showing a firmer underlying trend in the labor market pushed yields higher.

The reports further helped flatten the yield curve.

The gap between U.S. 2-year note and U.S. 10-year note yields contracted to 63.2 basis points, the tightest since November 2007. The gap was last at 65.1 basis points.

The difference in five-year and 30-year yields narrowed to 72.4 basis points, the flattest since December 2011. It was last 74.1 basis points.

On Thursday, Treasury held a 10-year TIPS auction. The $11-billion 10-year TIPS reopening was soft as expected.

The note picked a higher-than-expected yield of 0.512 percent, compared with the 0.498 percent at the bid deadline. That's the highest yield since January 2016's 0.725 percent.

"Considering this is a TIPS auction, the result wasn't bad but certainly softer than what we expected given the fundamentals," said Aaron Kohli, rates strategist at BMO Capital Markets in New York.

In late trading, the 10-year Treasury yield rose to 2.355 percent, from 2.335 percent late on Wednesday.

U.S. two-year yields climbed to a nine-year peak of 1.716 percent, from 1.691 percent on Wednesday. Two-year yields were last at 1.712 percent.

U.S. 30-year bond yields rose to 2.797 percent, from Wednesday's 2.781 percent. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler and Susan Thomas)