(Changes headline) By Karen Pierog CHICAGO, Dec 1 (Reuters) - U.S. Treasury yields surged on Tuesday, propelled by a new push in Congress to send federal aid to businesses and state and local governments slammed by the coronavirus pandemic. The benchmark 10-year yield was last up 7.9 basis points at 0.9211%, after hitting a session high of 0.938%, its highest since Nov. 12. The most closely watched section of the yield curve steepened to its widest also since Nov. 12. The 10-year yield increase was the biggest since Nov. 9. The inflation breakeven for 10-year Treasury Inflation Protected Securities (TIPS) reached 1.824%, its highest level since May 2019. "It"s really a story of fiscal stimulus hopes today," said Ben Jeffery, a strategist at BMO Capital Markets in New York. A bipartisan group of U.S. senators and House of Representative members proposed a $908 billion relief bill. The news sent U.S. stocks up, a risk-on move that drove prices of safe-haven Treasuries down and yields higher. Meanwhile, U.S. Senate Majority Leader Mitch McConnell said he was circulating among his fellow Republicans a separate outline of a bill that the White House would accept. President-elect Joe Biden indicated even more relief would come under his administration, calling any legislation passed before he takes office in January "just a start." More federal spending to combat the economic fallout from the virus would mean another wave of big supply in the Treasury market. Jeffery said good news on the vaccine front, which lifted Wall Street, added to the sell-off in Treasuries, while the rise in the TIPS inflation breakeven signaled increasing inflation expectations. "This is sort of a manifestation of the optimism that this fiscal package combined with some version of a return to normal in the middle of next year is going to ultimately flow through to some pick up in inflation," he said. Treasury yields briefly retreated a touch earlier in the session after the Institute for Supply Management reported that the pace of U.S. manufacturing activity growth slowed in November. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was last up 2.3 basis points at 0.1701%. The gap between yields on two- and 10-year Treasury notes , seen as an indicator of economic expectations, was last at 74.90 basis points, 6 basis points above Monday"s close. Other parts of the yield curve also steepened. Closer to the belly, the three-month bill/five-year note spread closing at its widest since Nov. 10 at 33.06 basis points, up more than 5 basis points. December 1 Tuesday 3:28PM New York / 2128 GMT Price Current Net Yield % Change (bps) Three-month bills 0.085 0.0862 -0.005 Six-month bills 0.0975 0.0989 0.005 Two-year note 99-233/256 0.1701 0.023 Three-year note 100-22/256 0.2208 0.035 Five-year note 99-202/256 0.4177 0.057 Seven-year note 99-156/256 0.6823 0.068 10-year note 99-144/256 0.9211 0.079 20-year bond 98-164/256 1.4537 0.090 30-year bond 99-28/256 1.6629 0.092 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.00 -1.25 spread U.S. 3-year dollar swap 6.50 -1.75 spread U.S. 5-year dollar swap 4.25 -2.00 spread U.S. 10-year dollar swap -1.25 -1.50 spread U.S. 30-year dollar swap -31.50 -0.25 spread (Reporting by Karen Pierog; editing by David Gregorio, Nick Zieminski and Richard Chang)