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TREASURIES-Prices gain on North Korean concerns

(Adds next week's inflation data, updates prices)

* North Korean fears pauses bond sell-off

* Treasury yield curve flattest since 2007

By Karen Brettell

NEW YORK, Sept 22 (Reuters) - U.S. Treasury prices gained on

Friday on global concerns about North Korea after it said it

might test a hydrogen bomb over the Pacific Ocean, and as

investors closed positions before the weekend.

North Korean leader Kim Jong Un promised on Friday to make

U.S. President Donald Trump, whom he called "mentally deranged,"

pay dearly after Trump warned he would destroy the country if it

threatened the United States and its allies.

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Kim's statement halted a bond sell-off sparked by the U.S.

Federal Reserve taking a more hawkish tone than investors had

expected at its September meeting, which concluded on Wednesday.

"There's much less selling in advance of the weekend," said

Jim Vogel, an interest rate strategist at FTN Financial in

Memphis, Tennessee. "This has the initial appearance of not

going home with any particular rate views when North Korea and

the White House are in a bigger spat than they have been."

Benchmark 10-year notes gained 7/32 in price to

yield 2.26 percent, down from 2.28 percent on Thursday.

The U.S. Treasury yield curve flattened to its lowest levels

since late 2007 overnight, before retracing in the U.S. session,

as traders prepared for the likelihood that the U.S. central

bank will raise rates in December.

New (KOSDAQ: 160550.KQ - news) economic projections released after the Fed's meeting

showed 11 of 16 officials see the "appropriate" level for the

federal funds rate, the central bank's benchmark interest rate,

at 1.25 percent to 1.50 percent by the end of 2017, one-quarter

of a point above the current level.

That view comes despite still-sluggish inflation that many

investors have viewed as likely to crimp the Fed's ability to

tighten monetary conditions.

"There is not a lot of faith that yields can be sustainably

higher," said Aaron Kohli, an interest rate strategist at BMO

Capital Markets in New York.

Intermediate-dated debt is highly sensitive to interest rate

increases, while longer-dated bonds are influenced by inflation

expectations.

"The problem comes from the long-term implications of their

moves," Kohli said. "What does that say about growth and

inflation in the long run? The market's not very optimistic

about that."

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

flattened to 91.1 basis points, the lowest level

since late 2007, before steepening back to 92.3 basis points.

Personal (LSE: PGH.L - news) income data due next Friday will be the next major

focus for signs of whether inflation is picking up.

(Editing by Meredith Mazzilli and Richard Chang)

)