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TREASURIES-U.S. bonds fall as investors await Washington breakthrough

* U.S. 1-month T-bill rates highest since November

* Treasuries CDS prices nearing 2011 debt fight levels

* U.S. jobless claims little changed in latest week

By Richard Leong

NEW YORK, Oct 3 (Reuters) - U.S. Treasuries prices slipped on Thursday as investors moved to the sidelines, awaiting a breakthrough in Washington to end the first government shutdown in 17 years.

The bond market brushed off encouraging news at home and abroad, suggesting the global economy is rolling along, albeit at a sluggish pace.

"People are just keeping their cards close to the vests as they keep an eye on what's going on with the politicians in Washington," said Larry Milstein, head of agency and government trading at R.W. Pressprich & Co. in New York.

Given the gridlock over the budget and healthcare reform that led to a partial government shutdown that began on Tuesday, investors are increasingly worried the lawmakers will not agree on a deal to increase the statutory $16.7 trillion borrowing limit by the Oct. 17 deadline.

Failure to increase the debt ceiling, they fear, would unleash market chaos and damage the long-term creditworthiness of the U.S. government and the safehaven status of the dollar.

"The debt ceiling is a much greater concern," Milstein said.

As concerns over a U.S. default have intensified, the cost to insure Treasuries has soared in the credit default swaps market.

Investors would pay about 46,000 euros to insure 10 million euros worth of Treasuries for a year on Thursday, according to Markit. This was the highest premium on one-year U.S. sovereign debt since July 2011 during the first debt ceiling showdown between President Barack Obama and top Republican lawmakers.

Interest rates on Treasury bills that will come due between the debt ceiling deadline and the end of October also rose on default worries. The rate on the T-bill issue due Oct. 31 touched 0.17 percent, the highest level since November. This compared with the 0.03 percent on the T-bill due the following week.

A stabilization in Wall Street stock prices, in the meantime, curbed bids for longer-dated bonds.

Benchmark 10-year Treasury notes were down 3/32 in price with a yield 2.63 percent, up 1 basis point from late on Wednesday but still close to a seven-week low.

Economic data took a backseat to worries about the political fighting in Washington.

The U.S. Labor Department said jobless claims totaled 308,000 in the week ended Sept. 28, compared with an upwardly revised 307,000 in the previous week. Economists had projected the latest figure to have risen to 313,000.

This was the last government economic report until the partial shutdown ends.

While the standoff has forced up to a million federal workers into furlough and reduced non-essential services, some branches of government, including the Federal Reserve, have remained open.

The Fed plans later to buy $1.25 billion to $1.75 billion in Treasuries that mature between February 2036 and August 2043, part of its intended $45 billion in overall government debt purchases in October.

Also, San Francisco Fed President John Williams, Atlanta Fed President Dennis Lockhart, Dallas Fed President Richard Fisher and Fed Governor Jerome Powell will make public appearances later Thursday.