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TREASURIES OUTLOOK-U.S. yields mixed as China trade worries offset upbeat data

By Gertrude Chavez-Dreyfuss

* U.S. manufacturing, services data shows increase

* Bond market still focused on trade headlines

* Trump says trade deal 'potentially very close'

* U.S. yield curve flattens again (Repeats to additional subscribers without any changes to text)

By Gertrude Chavez-Dreyfuss

NEW YORK, Nov 22 (Reuters) - U.S. Treasury yields were mixed on Friday in choppy trading, as data showing a pickup in manufacturing and services activity was counterbalanced by persistent uncertainty related to trade negotiations with China.

U.S. short-term yields edged higher, benefiting from strong economic reports, while those on long-term debt were flat to slightly lower.

"There always seems to be caveats preventing the U.S. and China from getting a trade deal done," said Lou Brien, market strategist, at DRW Trading in Chicago.

"The market reacts to favorable headlines, then falls back once they see the caveats. There's just confusion," he added.

On Friday, President Donald Trump said a trade deal with China is "potentially very close" and that he stands with both the people of Hong Kong and Chinese President Xi Jinping amid massive protests in Hong Kong.

There are headwinds, however.

The U.S. Federal Communications Commission (FCC) on Friday voted 5-0 to designate China's Huawei and ZTE as national security risks, barring their U.S. rural carrier customers from tapping an $8.5 billion government fund to purchase equipment.

The upcoming Hong Kong elections over the weekend and a U.S. Congress bill that supports the protesters are adding to the trade tension.

In afternoon trading, U.S. 10-year note yields were unchanged at 1.772%.

Yields on 30-year bonds, on the other hand, were lower at 2.221%, from Thursday's 2.231%.

On the short end of the curve, U.S. two-year yields rose to 1.627%, from 1.605% on Thursday.

U.S. yields briefly rose earlier after data showed U.S. manufacturing output accelerated in November to its fastest pace in seven months. Services activity also picked up more than expected, according to an IHS Markit survey, a sign of the continued resilience of the U.S. economy in the face of the trade war and other headwinds.

"There's not a lot of conviction to these moves. The market is still trading off China headlines," said Justin Lederer, Treasury trader at Cantor Fitzgerald in New York.

"We're back 25 basis points on the 10s from two weeks ago. If the market sees a done deal in trade and there are no problems in the world, the 10-year yield would be closer to 2%," he said.

After steepening on Thursday, the yield curve flattened again on Friday amid a standstill in U.S.-China trade talks. The spread between the two-year and 10-year note yields narrowed to 15.3 basis points. The curve has flattened in seven of the last eight sessions. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler and Cynthia Osterman)