TREASURIES-Prices advance after solid 3-year note auction

* Strong demand meets $40 bln 3-year note auction

* Safety bids curbed by rally in riskier assets (Updates with a quote, changes byline)

By Ellis Mnyandu

NEW YORK, Nov 9 (Reuters) - U.S. government debt prices rose on Monday after a record-sized Treasury note auction drew strong demand and investors bet other debt sales this week would get a similar reception.

The three-year note sale won a rousing bid as investors stood to gain an extra 0.50 percentage point yield over two-year notes for taking on slightly more interest rate risk.

"I would call the auction stunning," said William O'Donnell, head of U.S. Treasury Strategy at RBS Securities in Stamford, Connecticut.

"I like to focus on the bid-to-cover ratio and just looking at that it was the best bid-to-cover ratio for the 3-year Treasuries since November 1990."

The Three-year Treasury note US3YT=RR was trading 1/32 higher with the yield at 1.36 percent, down from 1.37 percent late on Friday.

Benchmark 10-year notes US10YT=RR were trading 10/32 higher in price to yield 3.46 percent, down from 3.51 percent late on Friday, while 30-year bonds US30YT=RR were 15/32 higher to yield 4.37 percent from 4.40 percent.

Following the three-year auction, the Treasury will sell $25 billion in benchmark 10-year notes on Tuesday and $16 billion in 30-year bonds on Thursday as part of this week's $81 billion quarterly refunding.

"Two-year notes are already through their resistance level, so I think the very steep slope of the curve is going to help the bond auctions tomorrow and Thursday," added O'Donnell.

Before Monday's note auction, Treasuries appetite was curbed by a pickup in stocks and other riskier assets in the wake of a Group of 20 pledge to stick with measures to bolster the global economy.

(Editing by Andrew Hay)