TREASURIES-U.S. bond yields rise; spur 3-year auction interest

* U.S. sells 3-year notes at highest yield in over 4 years

* Longer-dated U.S. yields strike highest levels in 7 months

* Corporate supply adds upward pressure on Treasuries yields

* Concerns over Greece debt deal limit market selloff

(Updates market action, adds quote)

By Richard Leong

NEW YORK, June 9 (Reuters) - U.S. Treasuries yields rose on

Tuesday with benchmark yields reaching seven-month highs as

investors reduced their bond holdings to make room for this

week's flood of debt supply, including $24 billion in three-year

government notes.

Investors' sales and dealers' hedging linked to an expected

hefty supply of corporate bonds exacerbated the rise in

Treasuries yields following last Friday's surprisingly strong

U.S. jobs report, analysts said.

"The theme du jour is supply, which is expected to

accelerate this week," said Ed Atkins, Treasury strategist at

RBS Securities in Stamford, Connecticut.

Traders also blamed the rise in U.S. yields on a renewed

selloff of German Bunds.

The spike in yields enticed investors seeking higher income

at the latest three-year note sale, part of this week's $58

billion in government debt supply, analysts said.

The three-year issue due June 2018 fetched a yield of 1.125

percent, the highest since April 2011.

In the corporate bond sector, investment-grade companies

raised $6.85 billion, roughly a quarter of the total supply that

might be sold this week, according to IFR, a unit of Thomson

Reuters.

The weakness in Treasuries was mitigated by some safe-haven

demand as Greece sought a deal with its creditors.

On Tuesday, Athens submitted a new reform proposal, which

three European Union officials told Reuters was insufficient for

Greece to obtain more cash.

Traders fear Greece's struggle to meet its debt obligation

would portend its exit from the euro zone, a move that could

hurt global financial markets.

The yield on benchmark 10-year Treasuries notes

hit a seven-month peak of 2.449 percent before easing to 2.413

percent, up 3 basis points from late on Monday.

The 30-year bond yield was last at 3.139

percent, up 3 basis points on the day, after it hit a

seven-month high of 3.1830 percent earlier.

U.S. yields have risen since late April, largely in response

to a sharp selloff in German Bunds as pessimism

about Europe has lessened.

The 10-year Bund yield ended at 0.952 percent, up 6 basis

points on the day.

News (Other OTC: NWSAL - news) of a larger-than-expected 280,000 U.S. job gain in May

spurred selling in Treasuries as it raised bets the Federal

Reserve may lift interest rates as early as September.

"People are looking at the positive data. A September rate

hike is looking more likely," said Subadra Rajappa, head of U.S.

rates strategy at Societe Generale (Paris: FR0000130809 - news) in New York.

(Reporting by Richard Leong; Editing by Meredith Mazzilli and

Peter Galloway)