(New throughout) NEW YORK, Dec 17 (Reuters) - Long-dated Treasury yields rose on Thursday afternoon on hopes the U.S. Congress would pass a $900 billion stimulus package before the weekend, shaking off morning data showing distress in the labor market. Republicans and Democrats in Congress were scrambling to pass a new round of aid after months of inaction, with lawmakers from both parties saying that COVID-19’s worsening toll meant failure to agree was no longer an option. The U.S. government would be required to issue more debt to pay for stimulus and the supply would be expected to drive Treasury prices lower and yields higher. Investors also hope stimulus will boost the U.S. economy. The resurgence in infections has American cities again implementing shutdowns, leaving millions out of work. Investors were surprised in the morning when the Labor Department said weekly jobless claims rose to a three-month high. “Treasuries were incrementally weaker despite the initial round of data,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, due to “ostensibly positive momentum regarding the prospects for a stimulus bill.” Yields fell early and then rose in afternoon trade. The 10-year yield was last up 1.3 basis points to 0.933%. The 30-year yield was last up 1.6 basis points at 1.680%. The bump at the long end steepened the yield curve, with the spread between two- and 10-year yields widening by 0.7 basis point to 80.6 basis points. The spread between five- and 30-year yields widened by 1.4 basis points to 130.1 basis points. “Fiscal bailout 2.0 was always positioned to be the most relevant event post-FOMC and it’s living up to the billing,” said Lyngen. The move higher in longer-dated yields can also be attributed to the U.S. Federal Reserve’s announcement Wednesday that it would maintain its bond-buying policy. Prior to the meeting, some investors believed the Fed would announce a plan to buy more longer-dated debt in order to cap yields. Fed policy makers also more explicitly tied the central bank’s near-zero interest rate policy and quantitative easing endeavors to making significant progress towards full employment and inflation averaging 2%. After the meeting, expectations for higher inflation have jumped, pushing the yield on the 10-year Treasury Inflation-Protected Security to its lowest since early September. The breakeven inflation rate, which is a proxy for investor expectations of inflation, rose Thursday to its highest since April 2019. (Reporting by Kate Duguid; Editing by Kirsten Donovan and David Gregorio)