TREASURIES-Yields decline as Fed officials' comments boost December rate cut hopes

*

Fed officials hint at December rate cut amid market uncertainty

*

Treasury yields decline as investors focus on Fed comments

*

Mixed economic signals create doubts about necessity of rate cut

By Davide Barbuscia

NEW YORK, Nov 24 (Reuters) - U.S. Treasury yields declined on Monday as investors digested comments from Federal Reserve officials that supported the possibility of an interest rate cut next month, despite ongoing market uncertainty over the Fed's pace of easing.

With little in terms of major economic data on the calendar, bond investors on Monday focused on recent comments from top policymakers that have shifted market expectations strongly in favor of another quarter point reduction at the central bank's next rate-setting meeting in December. Available data indicate the U.S. job market remains weak enough to warrant another quarter-point rate interest rate cut in December, though action beyond that will depend on an upcoming data, Fed Governor Christopher Waller said in a Fox Business interview on Monday. That followed comments from New York Fed President John Williams, a permanent voter on rate policy and vice chair of the rate-setting Federal Open Market Committee, who said last week that U.S. interest rates could fall without putting the Fed's inflation goal at risk, while helping guard against a slide in the job market. Demand for Treasuries, which pushed yields lower, was also partly due to ongoing jitters in stock markets over elevated stock valuations for companies that have been spending heavily in developing cloud computing capacity for artificial intelligence. "Markets are scared of risk given the recent trading ... They are taking solace in the fact that the senior members of the Fed still want to ease in December even though the employment number won't be out until after the Fed meeting," said Andrew Brenner, head of international fixed income at NatAlliance, in a note to clients.

Rates futures traders were assigning a 79% probability to a 25 bps December rate cut on Monday, up from 71% on Friday, CME Group data showed.

Still, doubts remained among investors over the necessity of a rate cut in December, given continued signals of economic strength.

Jobs data for September released last week - delayed from their original schedule because of the recent government shutdown - showed that the U.S. unemployment rate rose in September but employers added more jobs than economists had expected during the month, providing a mixed economic picture.

"I am not necessarily anticipating a rate cut in December", said Sonal Desai, chief investment officer for Franklin Templeton Fixed Income, noting that inflation has remained stubbornly above the Fed's 2% target over the past two years.

Benchmark 10-year Treasury yields were last at 4.042%, about two basis points lower. Two-year yields were only slightly lower at 3.514%.

On the supply side, the Treasury Department will sell $69 billion in two-year notes later on Monday, the first of three auctions this week with five- and seven-year issues scheduled for Tuesday and Wednesday.

(Reporting by Davide Barbuscia, Editing by Nick Zieminski)