TREASURIES-Yields steady as traders weigh data against tariff risks

(Updated in late New York morning time)

By Karen Brettell

Jan 31 (Reuters) - U.S. Treasury yields were little changed on Friday as traders weighed strong consumer spending data and a moderate increase in inflation against the possible impact from U.S. President Donald Trump's warning of new levies on Mexico and Canada.

Yields briefly jumped after data showed that consumer spending, which accounts for more than two-thirds of U.S. economic activity, beat estimates with a 0.7% jump during December.

Meanwhile, the core personal consumption expenditures (PCE) price index rose 0.2% last month, in line with economists' expectations, for an annual gain of 2.8%. The headline PCE price index rose 0.3% last month for an annual gain of 2.6%.

"The very strong personal income spending data continues to suggest that the consumer remains resilient. At the same time, you do have inflationary pressures continuing to fade," said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York. "It really underscores that the Fed can keep rates on hold, at least for the next meeting or so if data like this continues."

Fed Chairman Jerome Powell said on Wednesday that the U.S. central bank wants to see further progress in inflation before cutting rates, but also expressed confidence that it remains on the right path to ease back closer to the Fed's 2% annual target.

Chicago Fed President Austan Goolsbee said Friday's inflation data was a bit better than expected and gives him comfort that inflation is on path to the 2% target, adding that he still expects the U.S. central bank's policy rate to be "a fair bit" lower in 12 to 18 months.

Fed governor Michelle Bowman said on Friday she still expects declining inflation to allow further interest rate cuts this year, but feels rising wages, buoyant financial markets, geopolitical risks, and upcoming administration policies could slow the process and keep price pressures elevated.

Uncertainty over the impact of potential tariffs by the Trump administration is muddying the outlook on the economy.

"Markets are struggling to figure out what to focus on here. I think that's one of the biggest issues... that the data seems to be relatively good, but there's a lot of uncertainty about tariffs and really what comes next on that front," Goldberg said.

Companies, consumers and farmers across North America braced on Friday for Trump to impose 25% tariffs on Canadian and Mexican imports within hours, moves that could disrupt nearly $1.6 trillion in annual trade.

The 2-year note yield, which typically moves in step with Fed interest rate expectations, was last up 0.6 basis points on the day at 4.203%.

The yield on benchmark U.S. 10-year notes fell 0.4 basis points to 4.508%.

The yield curve between two-year and 10-year notes was last at 31 basis points.

Next week's major economic focus will be Friday's jobs report for January. The Treasury will also release its refunding estimate for the coming quarters, with its broad borrowing estimate due on Monday and its more detailed estimate due on Wednesday.

(Reporting By Karen Brettell, Editing by Nick Zieminski and Deepa Babington)