* U.S. 2020 growth falls, but Q4 GDP rises * U.S. yield curve steepens * U.S. 10-year break-even inflation back above 2% * U.S. 7-year note auction shows decent results (Adds new comment, 7-year note auction, updates prices) By Gertrude Chavez-Dreyfuss NEW YORK, Jan 28 (Reuters) - U.S. Treasury yields rallied on Thursday, in tandem with gains on Wall Street, after fourth-quarter growth data for the world"s largest economy was not as weak as initially feared, while initial weekly jobless claims were below forecast. Even a strong U.S. 7-year note auction failed to push yields lower, as the market continued to reverse the Treasury rally that pushed long-dated yields to three-week lows for four straight days. U.S. 10-year, 20-year, and 30-year yields fell before the economic data and rose after that, steepening the yield curve after flattening the last four sessions. The spread between U.S. two-year and 10-year yields widened to 92.90 basis points . Data showed U.S. gross domestic product grew at a 4% annualized rate in the 2020 fourth quarter, in line with economists" forecasts, although for whole of 2020, it contracted 3.5%, the worst since 1946. However, investors focused instead on a possible economic recovery this year with additional fiscal stimulus and vaccine distribution. Another report showed U.S. jobless claims were lower than expected at 847,000, compared with forecasts of 875,000. "U.S. data was pretty decent today," said Justin Lederer, director, U.S. rates at Cantor Fitzgerald in New York. "When we look at the bad news that has come over the last few weeks, whether it"s weaker data or different strains of COVID, I think we are getting closer to a more positive environment," with vaccine rollouts and the fiscal stimulus, he said. The overall economic outlook gets better "as we get away from the holidays and closer to springtime with more people going outside and COVID cases coming down," he added. In afternoon trading, the U.S. benchmark 10-year yield rose to 1.056%, from 1.014% late on Wednesday. It earlier fell below 1%, a three-week trough. U.S. 30-year yields rose to 1.812% from Wednesday"s 1.78%, after sliding to a three-week low of 1.755%. U.S. 2-year yields were up at 0.121%, from 0.119% on Wednesday. Kevin Flanagan, head of fixed income strategy at WisdomTree Asset Management, said the reflation trade has never really gone away despite the recent decline in yields. "But often times you"ll see it"s two steps forward, one step back." Thursday"s record $62 billion 7-year note auction was well-received despite the issue size, with a high yield of 0.754%, lower than the "when-issued" level or consensus forecast at the bid deadline of 0.757%. That suggested investors were willing to accept a lower-than forecast yield for the sale. Total bids were a record $142.9 billion for a bid-to-cover ratio, a measure of investor demand, of 2.3, slightly below last month"s 2.31 and much lower than the 2.46 average. The auction largely benefited from the sell-off in Treasuries that cheapened the rates, attracting buyers. Post-auction, U.S. 7-year yields rose to 0.741%, from 0.706% on Wednesday. The break-even inflation rate on 10-year Treasury Inflation Protected Securities, a gauge of expected annual inflation over the next 10 years, rose to 2.04%, after dropping on Wednesday to below 2% for the first time since late December. January 28 Thursday 1:02PM New York / 1802 GMT Price Current Net Yield % Change (bps) Three-month bills 0.065 0.0659 -0.005 Six-month bills 0.08 0.0811 0.002 Two-year note 100-1/256 0.123 0.004 Three-year note 99-206/256 0.1912 0.013 Five-year note 99-182/256 0.4335 0.026 Seven-year note 99-52/256 0.7434 0.037 10-year note 98-80/256 1.0568 0.043 20-year bond 95-180/256 1.6298 0.046 30-year bond 95-132/256 1.8206 0.041 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.50 0.00 spread U.S. 3-year dollar swap 7.75 0.00 spread U.S. 5-year dollar swap 9.00 -0.25 spread U.S. 10-year dollar swap 3.75 0.00 spread U.S. 30-year dollar swap -24.75 0.25 spread (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Sinead Carew; Editing by Andrea Ricci, Dan Grebler and Richard Chang)