TREASURIES-Yields rise to one-month highs on hawkish Yellen

(Updates prices)

* Fed's Yellen seen more hawkish but noncommittal

* Two-, 30-year yield curve flattest since 2007

By Karen Brettell

NEW YORK, Aug 26 (Reuters) - U.S (Other OTC: UBGXF - news) . Treasury yields rose to

more than one-month highs on Friday as investors considered

whether the Federal Reserve is likely to raise interest rates at

its September meeting, after hawkish but noncommittal comments

by Fed Chair Janet Yellen.

Speaking at the annual gathering of central bankers in

Jackson Hole, Wyoming, Yellen said the case for a U.S. interest

rate increase has strengthened in recent months because of

improvements in the labor market and expectations of solid

economic growth.

She (Munich: SOQ.MU - news) did not indicate when the U.S. central bank might raise

rates.

Yellen's comments were "slightly hawkish," said Gennadiy

Goldberg, an interest rate strategist at TD Securities in New (KOSDAQ: 160550.KQ - news)

York. "Has the case for a rate hike strengthened? Yes. Is it

definitive? No."

Benchmark 10-year notes were down 16/32 in price

to yield 1.63 percent, the highest since June 24, and up from

1.56 percent before the comments.

Yields initially rose to 1.60 percent on Yellen's more

hawkish tone, before moving in the opposite direction and

dropping as low as 1.53 percent.

Bonds then resumed weakening after Fed Vice Chair Stanley

Fischer said Yellen's speech was consistent with expectations

for possible interest rate increases this year.

The difference between the yields of two-year notes and

30-year bonds fell to 142 basis points, marking

the flattest yield curve since 2007.

Investors have been searching for new signals on whether an

increase will be on the table at the Fed's September meeting

after other officials including New York Fed President William

Dudley said it is a possibility.

"September is not probable, but it's certainly possible,"

said Guy LeBas, chief fixed income strategist at Janney

Montgomery Scott in Philadelphia.

"Right now, the market has a September 25-basis-point hike

priced in with about one-in-four probability, and I think in

light of those comments the true number should be closer to

50-50, and December should be north of 50 percent," LeBas said.

An increase at the Fed's December meeting is seen as more

likely if the U.S. central bank raises rates once this year.

Fed Governor Jerome Powell also said on Friday that the Fed

should raise interest rates in a cautious and patient manner.

Bonds were little changed earlier on Friday after data

showed that U.S. economic growth in the second quarter was

slightly weaker than initially thought as businesses

aggressively ran down inventories, offsetting a spurt in

consumer spending.

(Editing by Nick Zieminski and Steve Orlofsky)