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TREASURIES-U.S. Treasuries prices firm before 5-year note auction

* Treasury to sell $34 billion 5-year notes

* U.S. to auction $13 billion 2-year floating-rate notes

* Two-year yields highest since October 2008

NEW YORK, Dec 27 (Reuters) - U.S. Treasuries prices firmed on Wednesday in light trading before the Treasury Department is due to sell $34 billion in five-year notes, the second sale of $88 billion in coupon-bearing supply this week. The United States sold $26 billion in two-year notes on Tuesday to below-average demand. The ratio of bids to the amount

of two-year Treasuries offered was 2.52, the lowest

reading in a year. The five-year note sale is also expected to attract relatively low demand with many traders and investors away after Monday's Christmas holiday and before next Monday's New Year's Day holiday. "It was a little bit softer yesterday, but that's typical for year-end," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. The United States will also auction $28 billion in seven-year notes on Thursday and sell $13 billion in two-year floating-rate notes on Wednesday.

Two-year Treasury yields were last unchanged in

price to yield 1.915 percent, down from 1.923 percent on Tuesday. The yields rose as high as 1.927 percent in overnight trading, the highest since Oct. 14, 2008.

Five-year notes gained 2/32 in price to yield

2.227 percent, down from 2.237 percent on Tuesday. Short- and intermediate-dated debt is highly sensitive to interest rate hikes. The notes also have been under pressure since October on expectations that the Treasury will increase supply next year as the Federal Reserve reduces its bond purchases. "The two- to five-year space has been underperforming, partly on the Fed and the expectations of hikes and partly on expectations that supply's going to start to increase," Goldberg said. The Treasury is expected to initially concentrate supply increases in Treasury bills and short- and intermediate-dated notes. 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)

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