(Recasts headline; updates yields, auction details)
NEW YORK, Aug 28 (Reuters) - U.S. Treasury yields on Tuesday rose across maturities to weekly highs as fears of a global trade war abated a day after the United States and Mexico reached agreement on an overhaul the North America Free Trade Agreement, known as NAFTA.
The easing of trade tensions prompted investors to reduce safe-haven positions in U.S. government debt. Sales of long-term Treasuries in particular pressured prices and drove yields up more at the long end of the curve, indicating bullishness about the economic outlook.
"There's a bit of optimism on trade because of what's going on with Mexico so far. It's probably far from over, but it's a very positive sign," said Gene Tannuzzo, senior portfolio manager, Columbia Threadneedle Investments.
The agreement between the United States and Mexico to overhaul NAFTA puts pressure on Canada to agree to new terms on auto trade and dispute settlement rules to remain part of the deal.
Wall Street's S&P 500 and Nasdaq stock indexes rallied to record highs on expectations Canada would sign on to the deal and ease the economic uncertainty caused by U.S. President Donald Trump's repeated threats to ditch the 1994 accord.
The market is also focused on the $37 billion auction of five-year notes at 1 p.m. EDT (1700 GMT), a $1 billion increase from July.
Following a well-received two-year note auction on Monday, analysts expected fair demand at Tuesday afternoon's five-year offering, though it will be the largest five-year auction since July 2010.
The yield on the U.S. benchmark 10-year Treasury note was last up 2 basis points at 2.871 percent, after rising 2.9 basis points on Monday's trade news. The 30-year bond yield rose 2.4 basis points to 3.023 percent, after rising 2.8 basis points Monday.
The short end of the curve moved less, with the two-year note yield up less than half a basis point. This steepened the yield curve, with the spread between two- and 10-year yields 2 basis points wider at 21 basis points and the spread between the five- and 30-year yields also up modestly, last at 25.9 basis points.
Tannuzzo noted that Federal Reserve Chair Jerome Powell suggested in a speech at Jackson Hole last week that the U.S. central bank "may be setting up for a pause sometime in the first half of 2019 - or at least they won't overdo it on short-term interest rates."
That would reduce upward pressure on yields at the short end of the curve.
(Reporting by Kate Duguid; editing by G Crosse)