TREASURIES-US yields advance after stronger-than-expected June payrolls

By Gertrude Chavez-Dreyfuss

NEW YORK, July 3 (Reuters) - U.S. Treasury yields rose on Thursday after data showed the world's largest economy created more jobs than expected last month, supporting the Federal Reserve's patient stance on cutting interest rates.

U.S. two-year yields, which track interest rate expectations, rose 9.5 basis points to 3.884% US2YT=RR, while the benchmark 10-year yield gained 4.7 bps to 4.342% US10YT=RR.

Thursday's data showed U.S. nonfarm payrolls increased by 147,000 jobs last month after an upwardly revised 144,000 gain in May. Economists polled by Reuters had forecast payrolls rising 110,000 following a previously reported 139,000 gain in May.

The unemployment rate fell to 4.1% from 4.2% in May. Economists had expected the jobless rate to tick up to 4.3%.

The odds of a July cut shrank to 6.7% after the jobs data, from about 25% before the report's release. Chances of a September easing also dropped to 80%, compared with 98% just before.

"Today's stronger jobs report confirms a still resilient U.S. labor market, defying, at least for now, the signs of weakness seen in some leading indicators," wrote Simon Dangoor, head of fixed Income macro strategies at Goldman Sachs Asset Management in emailed comments.

"The FOMC's (Federal Open Market Committee) conviction that it should hold its wait-and-see stance while it braces for an acceleration in inflation over the summer will only be strengthened."

The yield curve flattened after the data, with the spread between two-year and 10-year yields at 45.4 bps US2US10=TWEB compared with 49.2 bps late Wednesday, as the bond market priced a likely delay in Fed easing.