(Updates with market activity, analyst comment) By Ross Kerber Feb 4 (Reuters) - Longer-term U.S. Treasury yields were higher on Thursday as investors positioned for a large pandemic relief package from Washington and a stabilizing U.S. labor market. The benchmark 10-year yield was up a basis point at 1.1409% in afternoon trading. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 103 basis points, about a basis point higher than Wednesday"s close. Earlier it reached 104 basis points, the most since May 2017. The risk-on trading tracked equities trading as Wall Street"s main indexes climbed. Tom Simons, money market economist for Jefferies LLC, said the steeper yield curve reflected a stronger-than-expected jobs report and expectations that Democrats in Washington would pass a $1.9 trillion COVID-19 relief package without Republican support. Both factors pointed to improving economic activity. Inflationary pressure also seemed to be rising, he said, although inflation will be tricky to measure because springtime price comparisons will be with data taken during 2020"s economic shutdowns in many areas. Forces like foreign demand for U.S. Treasuries stabilized their prices on Thursday and kept yields from rising further, said Kim Rupert, senior economist for Action Economics. "Considering the rally in Treasuries and the extent of the spending proposals, one would think yields would be even higher," she said. The ADP National Employment Report on Wednesday showed private payrolls increased by 174,000 jobs last month, more than expected. The yield on the three-month U.S. Treasury note was at 0.0355%, down a basis point and its lowest since March. It has fallen steadily in recent days, which Action"s Rupert said reflected lower bill issuance. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down less than a basis point at 0.1152% in afternoon trading. The 20-year U.S. Treasury yield was at 1.7396%, up 2 basis points and its highest since the note was re-introduced last May. February 4 Thursday 2:01PM New York / 1901 GMT Price Current Net Yield % Change (bps) Three-month bills 0.035 0.0355 -0.010 Six-month bills 0.0525 0.0532 -0.008 Two-year note 100-5/256 0.1152 -0.002 Three-year note 99-208/256 0.1889 0.000 Five-year note 99-148/256 0.4607 0.002 Seven-year note 99-152/256 0.8099 0.002 10-year note 97-140/256 1.1409 0.010 20-year bond 93-236/256 1.7396 0.019 30-year bond 93-24/256 1.931 0.019 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.50 0.25 spread U.S. 3-year dollar swap 9.25 0.25 spread U.S. 5-year dollar swap 11.75 0.50 spread U.S. 10-year dollar swap 7.00 1.00 spread U.S. 30-year dollar swap -22.25 1.00 spread (Reporting by Ross Kerber in Boston; Editing by Andrea Ricci and Diane Craft)