TREASURIES-Yield curve steepens as wage data points to low inflation

(Adds quotes, data, Fed speakers, updates prices)

* Fed's Williams hawkish on inflation, rate hikes

* Tepid wage growth eases inflation concerns

* Treasury to sell $62 bln new issues next week

By Karen Brettell

NEW YORK, Feb 3 (Reuters) - The U.S. Treasury yield curve

was the steepest in one-and-a-half months on Friday after the

jobs report for January showed disappointing wage growth,

indicating inflation is not rising at a pace that would lead the

Federal Reserve to raise rates in the near-term.

Nonfarm payrolls increased by 227,000 jobs last month, the

largest gain in four months, the Labor Department said.

Average hourly earnings, however, increased only three cents

or 0.1 percent and December's wage gain was revised down.

"Most of the disappointment is really focused around the

inflation pressures that would presumably force the Fed to act,"

said Aaron Kohli, an interest rate strategist at BMO Capital

Markets in New York.

The yield curve between 5-year notes and 30-year bonds

steepened to 120 basis points, the widest since

Dec (Shanghai: 600875.SS - news) . 14.

Five-year notes, which are very sensitive to rate increases,

were supported by the payrolls report while long-dated bonds

were weighed down by anticipation of new debt issuance next

week.

The Treasury Department will sell $62 billion in three-year,

10-year and 30-year debt.

Hawkish comments from San Francisco Fed President John

Williams on Friday afternoon, however, undid much of the bond

rally sparked by the jobs report.

The Fed can prepare to raise interest rates this year

without knowing details of any new U.S. fiscal policies because

inflation is firming and the labor market looks good, Williams

said.

Benchmark 10-year notes fell 6/32 in price on

the day to yield 2.49 percent, after the yields fell as low as

2.43 percent after the jobs data.

Expectations that the Fed could raise rates at its March

meeting have fallen since the U.S. central bank gave a more

dovish than expected statement after it's meeting on Wednesday.

The odds dropped further on the jobs report.

"The wage numbers from today definitely takes March off the

table for anything from the Fed," said Mary Ann Hurley, vice

president in fixed income trading at D.A. Davidson in Seattle.

"The Fed has been very, very concerned about weak wage growth."

Futures traders are now pricing in only a 9 percent of a

rate increase in March, down from 18 percent on Thursday,

according to CME Group (Kuala Lumpur: 7018.KL - news) 's FedWatch Tool.

Chicago Fed President Charles Evans said on Friday that the

Fed should raise interest rates slowly.

(Editing by Bernadette Baum and Andrew Hay)