TREASURIES-US yields dip as Fed's Powell says still cutting rates this year

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U.S. 10-year yields hit 4-1/2-month high

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U.S. two-year yield rises to new two-week peak

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Fed's Powell says has time to ponder rate cuts amid strong data

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U.S. private payrolls increase by 184,000 in March

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U.S. services sector growth slows last month

(Adds new comment, Fed's Powell's remarks, graphic; updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, April 3 (Reuters) - U.S. Treasury yields slipped from multi-month highs on Wednesday as Federal Reserve Chair Jerome Powell pointed out that recent upbeat data has not changed the overall picture for monetary policy, with interest rates still expected to fall this year.

Powell's comments came after yields extended their rise in the wake of data showing that U.S. private payrolls grew more than expected last month, reflecting persistent labor tightness.

"If the economy evolves broadly as we expect," said Powell in remarks prepared for delivery at the Stanford Graduate School of Business, he and his Fed colleagues largely agree that a lower policy interest rate will be appropriate

"at some point this year."

The earlier rise in yields got rolling after the ADP Employment report showed that U.S. private payrolls rose by 184,000 jobs in March after gaining by an upwardly revised 155,000 in February. Economists polled by Reuters had forecast private employment increasing by 148,000 last month, compared with the previously reported 140,000 in February.

Following the data, the benchmark 10-year yield hit a fresh 4-1/2-month peak of 4.429%. It was last down 1.2 basis points (bps) at 4.385%.

U.S. five-year, seven-year, 20-year , and 30-year yields also hit their highest in more than four months. Their yields have also come down.

On the shorter end of the curve, the U.S. two-year yield, which tracks interest rate moves, touched a new two-week high of 4.739% and last changed hands at 4.678%, down 2.3 bps.

"I don't think the message from the Fed is that they still don't envision rate cuts. It's just a matter of when and how many," said Kevin Flanagan, head of fixed income strategy at WisdomTree in New York.

"Inflation has become a little more difficult - I like to call it the last mile and the last mile is always the most difficult. That's what we're seeing. The improvement from 9% CPI to 3% was easy to get to, but to go from 3% to 2%, it's going to be a bit more challenging, a bit more bumpy."

Treasury yields also pulled back after data showed U.S. services industry growth slowed further in March, while a measure of prices paid by businesses for inputs dropped to a four-year low, suggesting easing inflation pressure.

The Institute for Supply Management (ISM)'s non-manufacturing PMI fell to 51.4 last month from 52.6 in February. It was the second straight monthly decline in the index since rebounding in January. Economists polled by Reuters had forecast the index edging up to 52.7 in March. The PMI remains consistent with an economy that continues to expand, though at a moderate pace.

Following the data, the U.S. rate futures market has priced in a 62.5% chance of a rate cut in June, down from about 64% late on Tuesday and 70% a week ago, the CME's FedWatch tool showed.

The market has also pared back the number of rate cuts to under three this year, from between three and four a few weeks ago, according to LSEG's rate probability app.

Atlanta Fed President Raphael Bostic on Wednesday echoed a chorus of Fed officials that say the U.S. central bank could afford to take time in cutting interest rates given inflation's uneven path.

He said the Fed should not cut its benchmark interest rate until the end of this year, maintaining his view that the U.S. central bank should reduce borrowing costs only once over the course of 2024.

"The only way we get three or four rate cuts this year is if there is some kind of black swan event," said Tom di Galoma, managing director and co-head of global rates trading at BTIG.

The yield curve further steepened or narrowed its inversion on Wednesday, with the spread between the U.S. two- and 10-year notes at minus 32.5 bps, compared with 34.4 bps on Tuesday. It was as narrow as minus 31 bps, the tightest since mid-February, in what has been described as a bear steepener.

Under a bear steepener, interest rates on the back end are rising faster than those on the front end, reflecting concerns about sticky inflation that could prompt the Fed to hold rates higher for longer.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrew Heavens, Nick Zieminski and Andrea Ricci)