* Lawmakers confident "fiscal cliff" will be avoided * Investors also keep an eye on Europe's debt woes * Volumes light ahead of Thanksgiving holiday By Chris Reese NEW YORK, Nov 19 (Reuters) - U.S. bond prices fell on Monday as signs of progress in government talks to avoid a looming budget crisis boosted demand for riskier assets like stocks and reduced the attractiveness of safe-haven bonds. In the past two weeks Treasuries yields have fallen to two-month lows as investors fled stocks on concerns that U.S. lawmakers would fail to reach a deal to resolve the $600 billion "fiscal cliff" of spending cuts and tax increases that start to kick in next year and which many fear would send the U.S. back into recession. Stocks rose on Monday however after leading Republican and Democrat lawmakers expressed confidence on Sunday that they could reach a deal, even as they stuck to their positions. "Democratic and Republican policymakers are actively negotiating over the fiscal cliff, as investors watch and wait with bated breath. They seem to be making progress, or so they suggest in their public comments," said Charles Lieberman, chief investment officer at Advisors Capital Management LLC in Hasbrouck Heights, New Jersey, adding "until the situation is resolved, markets are likely to remain volatile." Stocks traded over 1 percent higher and Treasuries fell, with benchmark 10-year notes losing 7/32 in price to yield 1.61 percent, up from 1.58 percent late Friday. Benchmark notes posted the biggest single-day rise in yield in nearly two weeks. Treasuries were largely taking cues from other markets as investors wait on new information relating to the economic impacts of recent storm Sandy, the wrangling over the fiscal cliff and ahead of the Federal Reserve's next policy meeting Dec. 11-12. A number of other factors including ongoing concern over Europe's debt crisis and rising tensions in the Middle East are expected to keep a bid for bonds, likely limiting yield gains. "There are a lot of variables, I don't think we are going to go any place soon," said Sean Murphy, a Treasuries trader at Societe Generale in New York. There was greater optimism on Monday that euro zone leaders will agree to release much-needed aid for Greece. European officials are expected to discuss a two-year funding plan for Athens at a meeting on Tuesday, which would postpone any longer-term solution until after a September 2013 German general election. Some investors were also reluctant to take new positions as risk aversion rises heading into year-end. "There is a reluctance to get involved given how many factors are influencing the market. The European situation should be enough to contain prices, but we could see slightly higher rates in the near term if we get a positive resolution on any of those fronts," said Murphy. Trading volumes were below average on Monday and are expected to continue that way this week with little in the way of top-tier economic releases on tap, and ahead of the U.S. Thanksgiving holiday on Thursday. The Treasuries market will be closed on Thursday and will close early on Friday at 2 p.m. EST (1900 GMT). Thirty-year bonds on Monday traded 16/32 lower in price to yield 2.76 percent, up from 2.73 percent late Friday.