TREASURIES-Yields rise after weak auction, before Yellen speech

(Recasts with action, adds quote, updates prices) * Soft demand for $28 bln seven-year auction * Yellen speech on Friday in focus * GDP data for second quarter due on Friday By Karen Brettell NEW YORK, Aug 25 (Reuters) - U.S. Treasury yields ended higher on Thursday after the government saw reduced demand for a sale of new seven-year notes, ahead of a highly anticipated speech by Federal Reserve Chair Janet Yellen on Friday.

The $28 billion seven-year notes sold at a high yield of 1.423 percent, slightly higher than where the debt traded before the auction.

That came a day after indirect bidders, which include fund managers and other investors, took the largest allocation of five-year notes in a $34 billion auction since at least 2003.

"Everybody wanted to play it a little bit safer and move into the five-year," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee.

Demand for the seven-year debt was likely dented by some nervousness before Yellen's speech.

Improving economic data is raising investors' expectations that the U.S. central bank will raise interest rates this year. Numerous regional Fed presidents in the past few weeks have painted a more upbeat picture of the economy.

That said, Yellen may struggle to convince markets she can steer a divided Fed to hike rates this year after it started the year with four hikes on its radar.

Yellen will speak at a Fed conference in Jackson Hole, Wyoming.

Kansas City Fed President Esther George said on Thursday that it is time for the Fed to raise U.S. rates gradually, given progress on employment and inflation.

Benchmark 10-year notes fell 5/32 in price to yield 1.58 percent, up from 1.56 percent late on Wednesday.

Data on Friday will include the second estimate of U.S. gross domestic product for the second quarter.

Bond prices fell earlier on Thursday after the Commerce Department said new orders for U.S. manufactured capital goods rose for a second straight month in July as demand for machinery and a range of other products picked up.

A 10.5 percent jump in demand for transportation equipment lifted overall orders for durable goods by 4.4 percent last month, which followed a downwardly revised 4.2 percent drop in June.

"Durables rebounded after last month's very poor number," said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York.

Other data on Thursday showed the number of Americans filing for unemployment benefits fell unexpectedly last week.

(Editing by Lisa Von Ahn and Meredith Mazzilli)