TREASURIES-Yields rise on easing risk aversion, Fed's Powell remarks

* U.S. existing home sales fall in May

* EU to impose tariffs on U.S. goods

* U.S. yield curve steepens amid trade war

(Adds comment, details, table, updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, June 20 (Reuters) - U.S. Treasury yields climbed

on Wednesday, recovering from sharp falls the previous session,

as the market took a pause from the worsening trade conflict

between the United States and China and focused on expectations

of further U.S. interest rate increases.

"The trade issue with China is still ongoing, but the stock

market has stabilized after yesterday's sell-off and that has

helped U.S. yields as well," said Subadra Rajappa, head of U.S.

rates strategy at Societe Generale (Swiss: 519928.SW - news) in New York.

U.S. yields dropped to multi-week lows on Tuesday after U.S.

President Donald Trump threatened to impose a 10 percent tariff

on $200 billion of Chinese goods, as Beijing warned it would hit

back.

Following China's actions, the European Union will begin

charging import duties of 25 percent on a range of U.S. products

on Friday, in response to U.S tariffs imposed on EU steel and

aluminum early this month, the European Commission said on

Wednesday.

Societe's Rajappa said a trade war would not have as much

impact on the U.S. economy as feared because the country's

economic fundamentals are strong and the rate-tightening path

remained firmly in place.

Federal Reserve Chairman Jerome Powell said as much on

Wednesday, noting that the Fed should continue with a gradual

pace of rate increases given that the labor market does not seem

to be overly tight.

"With (Other OTC: WWTH - news) the economy strong and risks to the outlook balanced,

the case for continued gradual increases ... remains strong,"

Powell said in prepared remarks before a central banking

conference in Sintra, Portugal.

His comments pushed yields higher. Before Powell's remarks,

U.S. yields had been little changed.

In late morning trading, U.S. benchmark 10-year yields rose

to 2.909 percent, from Tuesday's 2.893 percent.

U.S. 30-year yields were up at 3.042 percent,

compared with 3.028 percent on Tuesday.

U.S. two-year yields were at 2.553 percent,

slightly up from Tuesday's 2.545 percent.

Yields slipped a little after U.S. home sales unexpectedly

fell in May as an acute shortage of properties pushed house

prices to a record high.

The yield curve, meanwhile, steepened on Wednesday, with the

spread between U.S. 5-year notes and 30-year bonds widening for

a fourth straight session to 26.90 basis points.

Another yield curve measure, the gap between U.S. two-year

and U.S. 10-year notes, widened as well, to 36.4 basis points

.

Some market participants expected a steepening of the yield

curve with a trade war. They said that such a conflict would be

inflationary, which should constrain the Fed from further

raising rates, a scenario which should put a cap on short-term

yields.

June 20 Wednesday 10:57AM New York / 14

57 GMT

Price

US T BONDS SEP8 143-27/32 -0-8/32

10YR TNotes SEP8 119-188/256 -0-28/25

6

Price Current Net

Yield % Change

(bps)

Three-month bills 1.895 1.9306 -0.012

Six-month bills 2.075 2.1261 0.000

Two-year note 99-230/256 2.5535 0.008

Three-year note 99-230/256 2.6606 0.009

Five-year note 99-220/256 2.7804 0.011

Seven-year note 100-8/256 2.8698 0.015

10-year note 99-180/256 2.9095 0.016

30-year bond 101-156/256 3.0425 0.014

DOLLAR SWAP SPREADS

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

Change

(bps)

U.S. 2-year dollar swap 25.25 0.00

spread

U.S. 3-year dollar swap 22.00 0.25

spread

U.S. 5-year dollar swap 13.50 -0.75

spread

U.S. 10-year dollar swap 5.75 -0.75

spread

U.S. 30-year dollar swap -7.25 -1.00

spread

(Reporting by Gertrude Chavez-Dreyfuss

Editing by Chizu Nomiyama and James Dalgleish)