By Karen Brettell NEW YORK, Sept 12 (Reuters) - U.S. Treasuries yields rose on Wednesday after Germany's top court backed the euro zone's new bailout fund, reducing demand for the safe-haven bonds, and as investors prepared for new 10-year note supply. The Constitutional Court said Germany could ratify the European Stability Mechanism and budget pact as long as it could guarantee there would be no increase in German financial exposure to the bailout fund without parliamentary approval. The decision, though expected, helped riskier assets rally and lowered yields on the government debt of Spain and Italy, which had struggled to contain a spike in their borrowing costs in recent months. "This is one more hurdle the market needs to get over in order to continue to see Europe remain on the right path of trying to stabilize their situation," said Sean Murphy, a Treasuries trader at Societe Generale in New York. The impending sale of new, longer-dated debt also weighed on U.S. government debt yields. The Treasury will sell $21 billion in new 10-year notes on Tuesday, the second sale of this week's $66 billion in new supply. It will sell an additional $13 billion in 30-year bonds on Thursday. In the "when-issued" market, traders expect the upcoming 10-year note issue to sell at yields of 1.743 percent , just above levels in the secondary market of 1.741 percent. Thursday's $13 billion sale of 30-year bonds is seen as potentially seeing soft demand, as the bond auction will take place just an hour before the Federal Reserve is scheduled to give the statement from its two-day policy meeting. "The question mark will probably be tomorrow's 30-year bond auction, just given that you're taking it down right in front of the FOMC decision," said Murphy. Economists polled by Reuters see the odds of the Fed launching a third bond purchase program this week at 65 percent, up from 60 percent last month, as the central bank grapples with bringing down the stubbornly high unemployment rate. Bond yields are seen as largely pricing in new stimulus, leaving them at risk of a selloff if no new program is announced by Chairman Ben Bernanke on Thursday. "I think the risk to the market is that Bernanke disappoints," Murphy said. "The curve has pushed steeper and if he doesn't come with anything you will see that unwind." Benchmark 10-year notes were last down 11/32 in price to yield 1.74 percent, up from 1.70 percent late on Tuesday. Thirty-year bonds were down 29/32 in price to yield 1.90 percent, up from 2.85 percent. Five-year notes, which have been among the best performers on expectations of new easing, were down 3/32 in price to yield 0.68 percent, up from 0.66 percent late on Tuesday. The yield gap between five-year notes and 30-year bonds expanded to 222 basis points on Wednesday, the widest level since May 11. Demand for Treasuries also ebbed earlier on Wednesday after China said it will pay export tax rebates faster and grant more loans to exporters, as well as increase export credit insurance to small companies, in the latest move to prop up growth in the world's second-largest economy. The bonds showed little reaction to news that the U.S. ambassador to Libya and three other embassy staff had been killed by militants in a rocket attach, reflecting an increase in geopolitical risk.

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