* German ZEW sentiment index rises sharply for December * Treasury to start week's auctions with 3-year note sale * Fed expected to announce more Treasuries buying on Weds By Chris Reese NEW YORK, Dec 11 U.S. Treasury debt prices eased on Tuesday, taking cues from lower Bunds after an unexpectedly strong reading on German investor sentiment, and as the Federal Reserve was set to begin a two-day policy meeting. Investors were also pushing for price concessions heading into $66 billion of U.S. government debt auctions this week, while Wall Street was on target to open higher, which undermined the safe-haven allure of Treasuries. Calmer Italian debt markets after a sell-off on Monday triggered by Prime Minister Mario Monti's decision to step down early also took the shine off safe-haven assets. "We are seeing a little bit of a set-up for supply, and we came in weak thanks to Germany's investor sentiment index which climbed unexpectedly higher so we had some spillover from declines in German Bunds," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco. Germany's ZEW economic sentiment index jumped to 6.9 in December, far higher than the -12.0 forecast and the previous reading of -15.7. The risk-on trade was also supported by reports of a pick-up in the pace of talks to avert the U.S. "fiscal cliff" of steep tax hikes and spending cuts set for the new year, although Republicans and Democrats remain far apart. Benchmark 10-year Treasury notes were trading 9/32 lower in price to yield 1.65 percent, the highest in over a week and up from 1.63 percent late Monday, while 30-year bonds were 22/32 lower in price to yield 2.83 percent from 2.80 percent. After its two-day meeting, the Fed on Wednesday is expected to say it will buy $45 billion per month of longer-dated Treasuries beginning in January to replace its "Operation Twist" stimulus program, which expires at the end of December. The Treasury will sell $32 billion in three-year notes on Tuesday, followed by $21 billion in 10-year notes on Wednesday, and $13 billion in 30-year bonds on Thursday. Traders typically will push for lower Treasury prices heading into such auctions. Ahead of Tuesday's sale, the when-issued three-year note yield, considered a proxy for where the yield will print at auction, was trading at 0.324 percent, compared with three-year yields on the open market at 0.332 percent.
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