* Strong 30-yr bond auction lifts prices from session lows * Yields near highest in 2 weeks on talk of debt ceiling resolution * Fed bought $1.38 billion in TIPS due 2028-2043 * Debt ceiling extension pushes T-bill pressure to Nov/Dec By Karen Brettell NEW YORK, Oct 10 (Reuters) - U.S. Treasuries yields briefly rose to their highest levels in more than two weeks on Thursday amid talk Congress could agree to raise the debt ceiling, but the lower prices and higher yields drew buyers to the Treasury's $13 billion 30-year bond auction and lifted prices from the day's lows. "The bond auction was well bid for at the bidding deadline and very decent demand from real money accounts carried the auction to better levels," said Thomas di Galoma, co-head of fixed income rates at ED&F Man Capital in New York. Treasuries had traded weaker before the auction and built in a concession, said Ian Lyngen, Treasury strategist at CRT Capital Group in Stamford, Connecticut. Prices bounced from the lows following the sale, "plus a debt-ceiling deal seems increasingly difficult," he said. While the failure to raise the debt ceiling could trigger a default on U.S. Treasury debt coming due in the near future, anxiety about such an event prompts a liquidity bid for U.S. debt farther out on the maturity curve, tending to raise the price of U.S. debt and put downward pressure on yields. That has led to the short end of the yield curve inverting since yields on U.S. debt due the soonest must compensate for the risk of late payment. Selling picked up in overnight trading after Treasuries yields broke above their recent support levels. But it tapered off before the 30-year bond sale on Thursday. Benchmark 10-year notes were last down 6/32 in price to yield 2.69 percent, still just above a recent technical support level of around 2.68 percent. "After breaking above that level some sell stops were hit, which kept the market falling overnight," said John Canavan, fixed income analyst at Stone & McCarthy Research Associates in Princeton, New Jersey. Thirty-year bonds, however, erased an early loss and were up 1/32 after the bond sale, yielding 3.74 percent. Treasuries have largely traded sideways for the past two weeks, with many investors reluctant to enter new trades due to the political stalemate in Washington. The U.S. government entered its tenth day of partial shutdown on Thursday and fears have been rising that the political conflict could keep the debt ceiling from being raised and lead to a default on some short-term U.S. debt, an event that would undermine needed confidence in a benchmark asset to which all other financial markets are connected. The current on-the-run one-month Treasury bill yields , which mature on November 7, traded at 0.25 percent on Thursday, below a five-year high of 0.36 percent on Tuesday. The cost to finance overnight trades backed by Treasuries in the repurchase agreement market also shot higher on Thursday, opening at around 27 basis points before falling back to around 10 basis points, said traders. Banks and money funds have begun to stipulate that they won't accept Treasuries at risk of delayed payments to back repo loans. The Federal Reserve bought $1.38 billion in Treasury Inflation-Protected Securities (TIPS) due from 2028 to 2043 on Thursday as part of its ongoing purchase program.