TREASURIES-U.S. yields fall as traders bet on gradual rate rise

* Latest U.S (Other OTC: UBGXF - news) . data support view on modest economic growth

* Fed's Dudley remains upbeat on U.S. jobs market

* Futures imply low probability Fed raising rates in

September

* U.S. sells $14 bln 5-year TIPS supply at negative yield

(Updates trading, adds quote)

By Richard Leong

NEW YORK, Aug 18 (Reuters) - U.S. Treasury yields fell on

Thursday on bets the Federal Reserve is in no hurry to raise

interest rates with domestic inflation stuck below its 2 percent

goal and uncertainty about global risks to economic growth at

home.

The decline in yields followed Wednesday's release of

minutes of the central bank's July 26-27 policy meeting in which

policymakers said they wanted to "leave their policy options

open."

Thursday's data on new unemployment claims and Mid-Atlantic

business activity from the Philadelphia Fed supported the notion

of a continued economic expansion, but not one that is strong

enough to handle a steady string of rate increases, analysts and

investors said.

"It's a long way from what the Fed had signaled back in

December. It's about a rate hike, not a rate-hike campaign,"

said Matt Toms, head of public fixed income at Voya Investment

Management in Atlanta (BSE: 532759.BO - news) .

On Thursday, New York Fed President William Dudley remained

upbeat about the labor market, reinforcing his view earlier this

week that the Fed is ready to raise rates.

Interest rate futures implied traders see a 14 percent

chance the Fed will raise rates at its Sept. 20-21 policy

meeting, unchanged from Wednesday's close, according to Reuters

data.

The yield on two-year Treasury notes, which are

sensitive to traders' views on Fed policy, was down nearly 3

basis points at 0.710 percent. On Wednesday, it reached a

three-week peak of 0.774 percent shortly before the release of

the FOMC minutes.

Benchmark 10-year Treasury notes were up 8/32 in

price to yield 1.534 percent, down 1 basis point from Wednesday,

while the 30-year bond was up 10/32 in price for a

yield of 2.258 percent, down 1.5 basis points.

Bond yields will likely stay in a narrow range in advance of

a meeting of global central bankers at Jackson Hole, Wyoming,

next week. Fed Chair Janet Yellen, who is scheduled to attend

the annual event, is expected to reinforce the notion of a

glacial pace for the Fed to increase rates, investors said.

"The market believes that the doves are in control of the

Fed, and Yellen is a dove," said Don Ellenberger, head of

multi-sector strategies at Federated Investors in Pittsburgh.

On the supply front, the U.S. Treasury Department sold $14

billion of five-year Treasury Inflation Protected Securities to

average demand, analysts said. The latest five-year TIPS supply

fetched a negative yield for a second straight auction.

August 18 Thursday 3:39PM New York / 1939 GMT

Price

US T BONDS SEP6 172-1/32 0-14/32

10YR TNotes SEP6 132-108/256 0-80/256

Price Current Net

Yield % Change

(bps)

Three-month bills 0.2975 0.3019 0.000

Six-month bills 0.43 0.4369 -0.023

Two-year note 100-22/256 0.7055 -0.032

Three-year note 99-200/256 0.8242 -0.040

Five-year note 100-20/256 1.1087 -0.039

Seven-year note 99-52/256 1.3706 -0.038

10-year note 99-180/256 1.5322 -0.029

30-year bond 99-216/256 2.2572 -0.016

DOLLAR SWAP SPREADS

Last (bps) Net (LSE: 0LN0.L - news)

Change

(bps)

U.S. 2-year dollar swap 25.75 1.25

spread

U.S. 3-year dollar swap 19.50 1.50

spread

U.S. 5-year dollar swap 2.50 0.75

spread

U.S. 10-year dollar swap -12.50 0.50

spread

U.S. 30-year dollar swap -51.50 0.25

spread

(Reporting by Richard Leong; Editing by Steve Orlofsky and Dan

Grebler)