REFILE-TREASURIES-Yields slightly down ahead of crucial inflation data this week

Changes headline to add 'Treasuries' tag, refiles to additional customers

NEW YORK, Feb 24 (Reuters) - U.S. Treasury yields were slightly down on Monday, with 10-year yields hitting their lowest in more than two months, as markets wait for inflation data that could help gauge the timing of the Federal Reserve's first interest rate cut this year.

The Personal Consumption Expenditures index, the Federal Reserve's preferred inflation gauge, is expected on Friday. Later this week, investors will also get the second estimate of fourth-quarter growth figures in the U.S.

The yield on the benchmark U.S. 10-year Treasury note US10YT=TWEB fell 1 basis point to 4.41%, the lowest since December 17. The yield on the 30-year bond US30YT=TWEB fell 0.5 basis points to 4.664%.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 21.6 basis points, flattening from 22.9 basis points late on Friday.

The two-year US2YT=TWEB U.S. Treasury yield, which typically moves in step with interest rate expectations, was unchanged at 4.192%, after opening slightly down. The two-year yield hit the lowest since February 5 on Monday.

According to the CME's Fed watch tool, the highest probabilities for the first rate cut of the year are between June and July. Markets estimate a higher possibility of a second cut between October and December, according to the tool.

Markets are attentive to any sign of a cooling economy after the S&P Global Survey showed on Friday a sharp decrease in U.S. business activity in February.

Bob Brusca, chief economist at Fact and Opinion Economics, said markets are very optimistic about the interest rate trajectory.

"No one is considering that inflation has slowed, but (it) has been above target for a long time, so interest rate cuts should not be a done deal," he said.

The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.412%, indicating the market sees inflation averaging about 2.4% a year for the next decade.

"The labor market continues to be strong, and I don't see a lot of evidence of the 'residual seasonality' cited by Powell," Brusca said, referring to seasonal patterns appearing in data that have already been seasonally adjusted.