* Ten-year yields ease further off eight-week highs
* U.S. Speaker's own party kills bill as fiscal cliff nears
* Charts indicate futures will resume downward path
By Alistair Smout and Lisa Twaronite
LONDON/TOKYO, Dec 21 U.S. Treasuries rose on Friday after the top Republican in Congress could not muster the votes within his party to support a tax bill aimed at averting a $600 billion fiscal crunch before year-end.
Yields on 10-year Treasuries extended Thursday's falls after House of Representatives Speaker John Boehner acknowledged his bill lacked the votes to pass.
Boehner said late on Thursday after cancelling a vote on his so-called Plan B, it was up to President Barack Obama to work with fellow Democrats in the Senate to hammer out a deficit-reduction deal that could avert the "fiscal cliff" of tax hikes and spending cuts.
U.S. benchmark yields could pull further away from eight-week highs hit earlier in the week, traders and strategists said, but added a compromise could still be reached before year end, curbing the rally in safe-haven debt.
"The news overnight that the Plan B for Mr. Boehner didn't even make the ballot box is giving Treasuries a bit of a lift... If they don't reach a compromise by year-end they can still make an agreement in January and make it retroactive," said Nick Stamenkovic, a strategist at RIA Capital Markets in Edinburgh.
"But clearly if they come into new year, the fiscal negotiations are still on a knife edge and no agreement is being made, investors will be nervous about the adverse impact on the U.S. economy and will put money into safe-haven assets such as Treasuries," he added.
Yields on 10-year Treasuries were last down 4 basis points at 1.76 percent in European trade, after dropping as low as 1.746 percent in Asian hours from 1.803 percent in late U.S. trade.
Earlier this week, the 10-year yield rose to an eight-week high of 1.847 percent on rising optimism that a budget deal was close but this dissipated after the latest setback.
Treasury note futures rose 10/32 to 132-15/32, but further gains were seen as capped by the possibility of retroactive settlement after the Jan. 1 deadline. Technical indicators also showed a reversal of the long-term downwards pressure on U.S. Treasuries was unlikely.
"The move overnight has just taken the market back towards the first retracement of the December sell-off, which stands at 132-21/32, so that's the first resistance," said Richard Adcock, fixed income technical strategist at UBS.
"The rally seems to be nothing more than just a pull back to the first retracement point, and we've recommended using that as a selling opportunity," he added.
The lack of progress in the fiscal talks boosted demand at Thursday's $14 billion auction of five-year Treasury inflation protected securities (TIPS), which sold at a record negative yield of 1.496 percent.
The Federal Reserve cancelled the sale of shorter-dated Treasury debt that was tentatively scheduled for Dec. 27 as part of the central bank's "Operation Twist" stimulus programme, the New York Fed said on its website on Thursday, as the sale was "no longer necessary."
On Thursday, the Fed bought $1.73 billion of Treasuries maturing February 2023 through February 2031, followed by a $7.42 billion sale of its short-dated debt holdings, as part of "Operation Twist".