TOKYO, Dec 18 (Reuters) - U.S. Treasuries fell on Tuesday on hopes that policymakers in Washington will reach a deal to avert sharp fiscal contraction as President Barack Obama and congressional Republicans showed signs of compromise.
* The yield on the benchmark 10-year notes rose about two basis points in Asian trade to 1.791 percent. Earlier, it briefly reached 1.796 percent, its highest level since Oct. 26.
* The 30-year bond yield rose to as high as 2.972 percent , also an eight-week high, and last stood at 2.959 percent, up about 1.5 basis point from late U.S. levels.
* In a major counteroffer that moves the two parties closer to resolving their standoff, Obama offered to accept $1.22 trillion in spending cuts in exchange for $1.2 trillion from higher tax revenue, including increased rates on those earning more than $400,000 a year, above his previous threshold of $250,000.
* Republican leader John Boehner's latest proposal calls for $1 trillion in new tax revenue, which would come from raising rates and limiting deductions that the wealthiest can take. He has also put forward a tax increase for those earning over $1 million annually.
* "The gap between the two sides has shrunk considerably. It looks like a deal can be reached on Wednesday," said Tomoaki Shishido, fixed income analyst at Nomura Securities.
* "If they do reach a deal, the 10-year yield could rise to up to 1.9 percent," Shishido added.
* In addition, preparation for new Treasury supply this week also weighed on prices. The Treasury on Monday sold $35 billion in two-year notes to lukewarm demand, with the notes selling at a high yield of 0.245 percent, around 1 basis point higher than where the debt was trading before the auction.
* The government will sell an additional $35 billion in five-year notes on Tuesday, $29 billion in seven-year notes on Wednesday and $14 billion in five-year Treasury Inflation-Protected Securities (TIPS) on Thursday.