TREASURIES-U.S. bond yields rise as stocks rally after Fed policy statement

* Benchmark yields hit one-week highs after Fed statement

* U.S. jobless claims unexpectedly fall last week

* Investors buy record share at $16 bln TIPS auction

* Philly Fed index falls in Dec from near 20-year peak

(Updates to late market action, adds quote)

By Richard Leong

NEW YORK, Dec 18 (Reuters) - U.S. Treasuries yields rose on

Thursday as Wall Street shares gained a day after the U.S.

Federal Reserve signaled it might raise interest rates in 2015

but would do so at a gradual pace.

Most U.S. government yields touched one-week highs as some

traders exited positions that were betting shorter-term rates

would rise faster than longer-term rates. Traders were expecting

the U.S. central bank would raise short-term rates even as

domestic growth remains subpar and inflation falls short of its

2 percent goal next year.

"The Fed used soft language that the market would take

comfort in, especially equities," said Dan Heckman, senior fixed

income strategist at U.S. Bank Wealth Management in Kansas City.

On Wednesday, the Fed said it would be "patient" on timing

for a rate hike, depending on domestic growth and inflation,

both of which have been running below average.

The dramatic drop in oil prices in recent weeks and

economic weakness in Europe and Japan had reduced traders'

expectations that the Fed in 2015 would boost rates from the

near-zero levels adopted six years ago.

Still, evidence of a strengthening labor market and Fed

forecasts that inflation would pick up have kept the start of

rate normalization on track for sometime in 2015, according to

the latest Fed statement.

On Thursday, the U.S. Labor Department said first-time

filings for state jobless benefits declined by 6,000 to 289,000

for the week ended Dec. 13.

Some other data indicated a less robust outlook for the

economy. The Philadelphia Federal Reserve said its index on

business conditions in the Mid-Atlantic region fell in December

from the November reading, which was the highest since December

1993.

On balance, however, Thursday's data supported the view that

there might be enough momentum for the U.S. economy to expand at

a moderate 2.5-3.0 percent pace in 2015 without near-zero

interest rates, analysts said.

Major U.S. stock indexes rose with the Standard & Poor's 500

last up 1.8 percent.

The benchmark 10-year note yield was 2.209

percent, up 6 basis points from late on Wednesday and on track

for its largest two-day jump since June.

The yield spreads between short- and long-dated Treasuries

grew as traders closed out curve flattener trades. Most analysts

forecast these trades will come back in vogue.

"The momentum of the market has gotten ahead of itself. We

will ultimately see the curve flatten further," said Ira Jersey,

head of U.S. rates strategist at Credit Suisse (NYSE: CS - news) in New York.

The gap (NYSE: GPS - news) between two-year and 10-year yields widened to 1.57

percentage points from 1.54 points on Wednesday. It reached 1.51

points, its narrowest in 19 months, on Tuesday.

Despite a renewed drop in oil prices, Treasury

inflation-protected securities showed some stabilization. They

have been hammered by the steep drop in crude prices from

their peak in June.

The Treasury Department on Thursday paid investors, which

bought a record 64.81 percent of $16 billion in five-year TIPS

offered, a yield of 0.395 percent. This was

first five-year TIPS sale that fetched a positive yield since

April 2010.

(Reporting by Richard Leong; Editing by David Gregorio, Leslie

Adler and Meredith Mazzilli)