* Benchmark yields hit highest level since Sept 2014
* Oil futures rise on deal to cut output
* U.S. to sell $24 bln in 3-year notes, $20 bln 10-year notes (Updates market action, adds comment)
By Gertrude Chavez-Dreyfuss and Richard Leong
NEW YORK, Dec 12 (Reuters) - U.S. Treasury yields rose on Monday, with benchmark 10-year notes climbing to more than two-year peaks, after oil prices increased and as investors expected the Federal Reserve's first interest rate hike in a year.
"We have the Fed decision coming up on Wednesday, and people are unsure whether they should buy the dip here," said interest rate strategist Gennadiy Goldberg of TD Securities in New York. "We went to a key level earlier on at 2.50 percent in the 10-year, and while 2.50 seems attractive, we think it can back up some more."
U.S. 30-year bond yields advanced to 17-month highs, while those on two-year and three-year notes hit two-week peaks ahead of a 10-year U.S. government debt later in the session.
A rebound in crude prices reinforced the notion that U.S. inflation is on the rise with expectations of fiscal stimulus from the Trump administration.
Oil futures gained as much as 6.5 percent after the Organization of the Petroleum Exporting Countries and other major producers reached their first agreement since 2001 to pare output in a bid to deal with global oversupply.
Treasuries are also under pressure from Monday's U.S. government auctions, especially the 10-year note sale.
Goldberg said lower prices for the note were setting it up for a solid auction.
"But we're a little concerned about demand," Goldberg said. "I am sure there are a lot of people who want to buy on the dip, but if they expect yields to continue backing up, it could temper some of that demand."
The U.S. Treasury Department will sell $24 billion three-year notes at 11:30 a.m. (1630 GMT) and $20 billion in 10-year notes at 1 p.m. (1800 GMT).
The Treasuries supply comes before a widely expected quarter-point interest rate increase from the Fed at its two-day policy meeting on Tuesday and Wednesday.
In late morning trading, U.S. 10-year note prices were down 8/32, while the yield rose to 2.493 percent from 2.464 percent late on Friday. Earlier Monday, the yield struck 2.528 percent, its highest since Sept. 29, 2014, according to Reuters data.
U.S. 30-year bonds were down 15/32. The yield was 3.179 percent after rising to 3.215 percent, the highest since July 2015.
U.S. three-year notes were flat at 1.424 percent ahead of the auction. (Reporting by Gertrude Chavez-Dreyfuss and Richard Leong; Editing by Chizu Nomiyama and Lisa Von Ahn)