TREASURIES-U.S. yields surge with 10-year Treasury at cusp of 5%

(Recasts lead with comment from Powell in paragraphs 1-4, new comment in paragraphs 9-10, updates prices at 1:15 p.m. ET) By Herbert Lash NEW YORK, Oct 19 (Reuters) - Treasury yields surged anew on Thursday, lifting the benchmark 10-year to a fresh 16-year high at almost 5%, as Federal Reserve Chair Jerome Powell said signs of above-trend growth or a too strong labor market could warrant more monetary tightening. Powell said U.S. central bankers are moving carefully on policy now after aggressive rate hikes last year, to give time for tighter conditions to slow the economy and inflation. "We have to use our eyes, and a little bit of risk management, and patience in slowing down the pace to make sure that we are seeing the full effects," Powell said at the Economic Club of New York. But he also said that more evidence of above-trend growth, or of a labor market no longer easing, could warrant further monetary policy tightening, a comment that spurred the benchmark 10-year Treasury to hit 4.9963% before easing a bit. The Treasury market has been in a steep sell-off because of the U.S. economy's resilience despite the Fed raising interest rates to a range of 5.25%-5.5% in one of its most aggressive policy tightening cycles. Yields move inversely to price. Fresh data this week has highlighted strong consumer demand and a tight labor market, with a Labor Department report on Thursday showing the number of Americans filing new claims for unemployment benefits fell to a nine-month low last week. The unexpected decline in initial claims, in addition to solid retail sales and factory production in September, suggest sustained momentum in the economy. The two-year yield, a reflection of interest rate expectations, also jumped to well above 5% to new highs last seen in June 2006. "Without a doubt, the No. 1 driver in our eyes is the better-than-expected economic data continuing for longer and that's lifted the back end of the Treasury yield curve," said Roosevelt Bowman, senior investment strategist at Bernstein Private Wealth Management in New York. "The back end certainly is more driven by longer-term growth and inflation expectations rather than just policy like the short end." The yield on the 10-year note was up 4.5 basis points at 4.947%, while the two-year's yield fell 5.5 basis points to 5.163% after earlier hitting a 17-year high of 5.2592%. Shorter-dated rates, which are more sensitive to changes in central bank rate expectations, have risen less sharply than longer yields during the recent sell-off. Futures traders have reduced the number of rate cuts they expect from the Fed next year from four to two, while projecting the Fed's overnight rate to be above 5% through July. The probability of a December rate hike slid to about 31% after Powell spoke, according to CME Group's FedWatch Tool. The yield on the 30-year Treasury bond was up 6.8 basis points to 5.062%. Oct. 19 Thursday 1:15 p.m. New York / 1715 GMT Price Current Yield % Net Change (bps) Three-month bills 5.33 5.492 -0.006 Six-month bills 5.33 5.568 -0.012 Two-year note 99-175/256 5.1714 -0.047 Three-year note 98-234/256 5.0208 -0.025 Five-year note 98-160/256 4.9412 0.016 Seven-year note 97-232/256 4.9849 0.038 10-year note 91-176/256 4.9535 0.051 20-year bond 88-220/256 5.2884 0.059 30-year bond 85-160/256 5.064 0.070 (Reporting by Herbert Lash, additional reporting by Harry Robertson in London and Tom Westbrook in Singapore; Editing by Sharon Singleton and Susan Fenton)