TREASURIES-Yields rise after weak auction, before Yellen speech

(Recasts with action, adds quote, updates prices)

* Soft demand for $28 bln seven-year auction

* Yellen speech on Friday in focus

* GDP data for second quarter due on Friday

By Karen Brettell

NEW YORK, Aug 25 (Reuters) - U.S (Other OTC: UBGXF - news) . Treasury yields ended

higher on Thursday after the government saw reduced demand for a

sale of new seven-year notes, ahead of a highly anticipated

speech by Federal Reserve Chair Janet Yellen on Friday.

The $28 billion seven-year notes sold at a high yield of

1.423 percent, slightly higher than where the debt traded before

the auction.

That came a day after indirect bidders, which include fund

managers and other investors, took the largest allocation of

five-year notes in a $34 billion auction since at least 2003.

"Everybody wanted to play it a little bit safer and move

into the five-year," said Jim Vogel, an interest rate strategist

at FTN Financial in Memphis, Tennessee.

Demand for the seven-year debt was likely dented by some

nervousness before Yellen's speech.

Improving economic data is raising investors' expectations

that the U.S. central bank will raise interest rates this year.

Numerous regional Fed presidents in the past few weeks have

painted a more upbeat picture of the economy.

That said, Yellen may struggle to convince markets she can

steer a divided Fed to hike rates this year after it started the

year with four hikes on its radar.

Yellen will speak at a Fed conference in Jackson Hole,

Wyoming.

Kansas City Fed President Esther George said on Thursday

that it is time for the Fed to raise U.S. rates gradually, given

progress on employment and inflation.

Benchmark 10-year notes fell 5/32 in price to

yield 1.58 percent, up from 1.56 percent late on Wednesday.

Data on Friday will include the second estimate of U.S.

gross domestic product for the second quarter.

Bond prices fell earlier on Thursday after the Commerce

Department said new orders for U.S. manufactured capital goods

rose for a second straight month in July as demand for machinery

and a range of other products picked up.

A 10.5 percent jump in demand for transportation equipment

lifted overall orders for durable goods by 4.4 percent last

month, which followed a downwardly revised 4.2 percent drop in

June.

"Durables rebounded after last month's very poor number,"

said Justin Lederer, an interest rate strategist at Cantor

Fitzgerald in New York.

Other data on Thursday showed the number of Americans filing

for unemployment benefits fell unexpectedly last week.

(Editing by Lisa Von Ahn and Meredith Mazzilli)