* Deal to avert "fiscal cliff" spurs risk-on trade * Benchmark yields climb to highest since mid-Sept * Worries over debt ceiling seen containing selloff By Chris Reese NEW YORK, Jan 2 (Reuters) - U.S. benchmark 10-year Treasury yields rose to the highest in over three months on Wednesday after lawmakers approved a deal preventing a round of automatic fiscal tightening that could have pushed the world's largest economy into recession. The Republican-controlled House of Representatives approved a bill that will raise taxes on top earners, avoiding a "fiscal cliff" of $600 billion in tax hikes and spending cuts. This prompted investors to move money out of safe-haven assets such as U.S. government debt and into higher-yielding, riskier assets, such as equities. "The House passed the Senate's last minute deal overnight ... sparking a substantial risk-on move that has Treasuries on the back foot," said John Briggs, Treasury strategist at RBS Securities in Stamford, Connecticut. Benchmark 10-year Treasuries were trading 29/32 higher in price to yield 1.86 percent, marking the highest yield since mid-September and up from 1.76 percent late Monday. Thirty-year Treasury bonds were trading 1-30/32 lower in price to yield 3.05 percent, up from 2.95 percent late Monday and also the highest since mid-September. Yields may rise further if data, including the Institute for Supply Management factory activity survey for December later on Wednesday or the nonfarm payrolls report on Friday, show the U.S. economy improving. However, analysts said a massive selloff in U.S. debt was unlikely. In addition to further fiscal tightening, lawmakers must still agree in the next few weeks on raising the government's borrowing limit. "Higher tax rates will bring slower growth going forward and (investors) view the recent selloff as a decent opportunity to add duration," said Tom di Galoma, managing director at Navigate Advisors LLC in Stamford, Connecticut. The Federal Reserve's loose monetary policy is also expected to keep yields relatively subdued for a long period, especially on short-dated paper.