TREASURIES-US yields fall on safe-haven demand as stocks drop

*

Wall Street indexes drop amid concerns over equity valuations

*

Fed officials express concerns over easing due to sticky inflation

*

Fed funds futures show 48% probability of December rate cut

By Karen Brettell

NEW YORK, Nov 18 (Reuters) - U.S. Treasury yields fell on Tuesday as falling stock markets boosted demand for the safe-haven bonds and as weakening labor market indicators raised expectations that the Federal Reserve will cut rates next month. Wall Street's main indexes fell at the open on Tuesday on concerns over lofty equity valuations and as the odds of a Fed cut were seen as below 50%.

"It's really all stocks at this point. We're starting to get a 'risk off' move and I think that's what's going on in the bond market," said Tom di Galoma, managing director at Mischler Financial Group.

But weak labor market indicators have raised some hopes of further easing. Fed funds futures traders are now pricing a 48% probability of a December cut, up from around 40% on Monday.

The U.S. federal government has begun releasing economic data that was delayed by the U.S. government shutdown that ended last week after a record 43 days. The number of Americans receiving unemployment benefits stood at a two-month high in mid-October at the time when the Labor Department would have been conducting its survey of U.S. households, updated figures posted to a Labor Department website showed on Tuesday.

Analysts also cited data from the Cleveland Fed showing that 39,000 Americans were given advance notice of layoffs last month and a report from ADP Research showing that employers cut 2,500 jobs a week on average during the four weeks ending November 1.

The 2-year note yield, which typically moves in step with Fed rate expectations, was last down 5.4 basis points on the day at 3.556%. The yield on benchmark U.S. 10-year notes fell 4.1 basis points to 4.092%.

The yield curve between two-year and 10-year notes steepened to 53.4 basis points.

Several regional Fed officials have expressed concerns in recent days about further easing due to sticky inflation.

"Besides Waller talking about a cut in December, everybody else has been fairly hawkish for the most part," said di Galoma. Fed Governor Christopher Waller said on Monday U.S. firms have begun talking more frequently about layoffs as they plan for weaker demand and possible productivity gains from artificial intelligence, in remarks that continued to build the case for further rate cuts.

This week's main release will be September's monthly jobs report on Thursday. Economists polled by Reuters expect the report will show that employers added 50,000 jobs during the month.

However the delay in the releases and collection issues from when the government was closed will reduce the quality of the data over the coming months.

(Reporting by Karen Brettell, Editing by Nick Zieminski)