TREASURIES-US yields dip as August inflation slows

(Adds details, analyst comment, byline, updates prices throughout)

By Gertrude Chavez-Dreyfuss

NEW YORK, Sept 27 (Reuters) - U.S. Treasury yields fell on Friday after data showed inflation in the world's largest economy continued to ease, boosting the chances of an outsized interest rate cut at the Federal Reserve's November policy meeting.

The benchmark 10-year yield slid 3.6 basis points to 3.76% , while the two-year yield was down 3.1 bps to 3.591% .

The yield curve briefly steepened after the data, with the spread between two-year and 10-year yields hitting 17 bps . It was last at 16.3 bps. A steeper curve suggests more interest rate cuts are underway.

Data showed the personal consumption expenditures price index, the Fed's favored inflation measure, rose 0.1% in August after an unrevised 0.2% gain in July. Economists had forecast PCE inflation rising 0.1%. In the 12 months through August, the PCE price index increased 2.2% after rising 2.5% in July.

"Friday's ... PCE data increases the likelihood that the Federal Reserve will cut interest rates at both the November and December meetings, as this is yet another data point showing that there is no need for interest rates to be so much higher than the rate of inflation," Clark Bellin, president and chief investment officer at Bellwether Wealth in emailed comments.

The U.S. rate futures market has priced in a 54% chance of a 50 basis points cut in November, up from about 49% before the release of the data, according to LSEG calculations. The chances of a 25 bps move slid to 46% after the inflation data.

For the next two meetings in November and December, the futures market now expect nearly 80 bps in policy easing. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Toby Chopra and Jonathan Oatis)