TREASURIES-Two-year U.S. Treasury yields highest since 2008 before supply

* Treasury to sell $88 billion coupon-supply this week

* U.S. expected to increase auction sizes in 2018

* Trading conditions thin after Christmas holiday

NEW YORK, Dec 26 (Reuters) - Two-year U.S. Treasury yields rose to nine-year highs on Tuesday as investors focused on new supply that will be sold into light trading conditions this week, and on large increases in issuance expected in 2018. The United States will sell $26 billion in two-year notes on Tuesday, the first sale of $88 billion in new short- and intermediate-dated coupon supply this week. It will be sold into relatively illiquid conditions with many traders and investors away after Monday's Christmas holiday. At the same time, investors are preparing for the U.S. government to increase auction sizes next year for the first time since 2008 to make up for declining purchases by the Federal Reserve. "The short-end has been too low for most of this month in terms of yield," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee. "We think that's going to take another move up once January gets here and people start concentrating on additional Treasury supply." The Treasury is expected to initially concentrate increases in supply in short- and intermediate-dated notes.

Two-year Treasury yields rose as high as 1.916

percent on Tuesday, the highest since Oct. 14, 2008. Five-year

note yields rose as high as 2.263 percent, the

highest since April 12, 2011. The Treasury Department will sell $34 billion in five-year notes on Wednesday and $28 billion in seven-year notes on Thursday. It will further auction $13 billion in two-year floating-rate notes on Wednesday. Short- and intermediate-dated debt is also highly sensitive to interest rate hikes, which can send their yields higher. The Fed has indicated that an additional three increases are likely next year, though interest rate futures traders are pricing in only two.

(Reporting by Karen Brettell; Editing by Will Dunham)