TREASURIES-Short-term U.S. bond yields rise after Yellen comments

* Traders digest comments by Fed's Yellen

* U.S. initial jobless claims rose 5,000 last week

* U.S. home resales fell 0.4 pct in February

(Adds analyst comments, Fed bond purchases; updates prices)

By Sam Forgione

NEW YORK (Frankfurt: HX6.F - news) , March 20 (Reuters) - Yields on U.S. 2-year

Treasuries hovered near their highest in six months on Thursday,

a day after Federal Reserve Chair Janet Yellen signaled the

central bank might raise U.S. interest rates sooner than

expected.

Speaking at a press conference on Wednesday after the Fed's

two-day policy meeting, Yellen said the Fed could raise rates

six months after its current bond-buying program ends, which

spurred selling on fears of an earlier-than-expected move away

from the bank's near-zero rate policy.

Yellen said the Fed would probably end its massive asset

purchase program this fall. The comments forced traders to

reconsider the notion the U.S. central bank would hold its key

rate near zero at least into the second half of 2015.

"The front end of the yield curve is rising on expectations

of a higher fed funds rate," said Robert Tipp, chief investment

strategist at Prudential Fixed Income in Newark. The Fed has

kept the fed funds rate, its benchmark short-term borrowing

rate, near zero since late 2008 to help the economy recover from

recession.

Federal funds futures, meanwhile, fell to their lowest level

since January.

The April 2015 fed funds contract fell 1.5 basis

points to 99.735, suggesting traders see a 51 percent chance the

Fed will raise rates at its April 2015 meeting, up from 47

percent on Wednesday and nearly 34 percent a month ago,

according to CME Group (Kuala Lumpur: 7018.KL - news) 's FedWatch.

U.S. benchmark 10-year Treasury notes last

yielded 2.78 percent, up slightly from 2.77 percent late

Wednesday.

The yield on the 2-year U.S. Treasury note was

last at 0.4319 percent, up slightly from late Wednesday, when it

was at 0.424 percent. The yield rose as high as 0.448 percent on

Wednesday, its highest level since September. Bond yields move

inversely to their prices.

The yield on the 5-year U.S. Treasury note was

last at 1.71 percent, up slightly from 1.7 percent late

Wednesday and also hovering at Wednesday's high levels. The

yield had surged 16 basis points on Wednesday to 1.712 percent,

its largest one-day rise since July 2013.

While short-dated yields rose, those on long bonds were

steady after investors anticipated that an earlier-than-expected

rise in U.S. interest rates would slow inflation over the longer

term.

The 30-year Treasury bond was last up 2/32 in

price to yield 3.667 percent, roughly unchanged from a yield of

3.67 percent late Wednesday.

Traders said Yellen's comments overshadowed U.S. economic

data released on Thursday. The Philadelphia Federal Reserve Bank

said its business activity index rose to 9.0 in March from -6.3

in February, and showed better-than-expected growth in factory

activity in the U.S. Mid-Atlantic (Frankfurt: 98S.F - news) region.

The Labor Department, meanwhile, said initial claims for

state unemployment benefits increased by 5,000 last week, which

was lower than expected and pointed to some underlying strength

in the labor market.

Data on U.S. existing home sales also had little impact on

Treasury debt prices. The National Association of Realtors said

U.S. home resales dropped 0.4 percent in February to an annual

rate of 4.60 million units, a 19-month low, in line with

economists' expectations.

Yellen's comments also hurt demand at the Treasury's auction

of $13 billion in 10-year Treasury Inflation-Protected

Securities on Thursday. Direct bidders such as institutional

investors bought 7.93 percent of the supply, marking their

smallest share since last September.

"Given Yellen's comments yesterday and the overall tendency

for the markets to sell, the auction was clearly affected," said

Jeffrey Young, U.S. interest rate strategist at Nomura

Securities International in New York.

The Fed bought $2.63 billion in Treasuries maturing between

May 2022 and November 2023, which had little effect on

Treasuries prices.

On Wall Street, all three major stock indexes rose on the

stronger-than-expected U.S. manufacturing and jobs data.

(Reporting by Sam Forgione, editing by Chris Reese and G

Crosse)