TREASURIES-US yields rise as investors chop Fed cut bets

(Adds LONDON dateline, updates prices)

SINGAPORE/LONDON, March 19 (Reuters) - Short-dated U.S. Treasury yields hit their highest level since last August on Thursday, after the U.S. Federal Reserve flagged the risk of a pick-up in inflation, prompting investors to begin to price in the possibility of no more rate cuts this year.

The two-year yield, which is typically most responsive to changes in expectations for inflation and interest rates, was up 6.2 basis points to 3.8051%. The benchmark 10-year yield was up 2.2 bps at 4.277%, while the five-year yield rose nearly 4 bps to 3.896%.

The U.S. central bank held rates steady on Wednesday as expected but forecast higher inflation, and individual projections showed a "meaningful" number of policymakers pencilling in less easing this year than three months ago, with the outlook clouded by the ongoing Middle East conflict.

"The Fed will not be riding to the economy's rescue, even if gas and diesel prices keep rising," said Bill Adams, chief economist at Comerica Bank.

"Monetary policy can slow growth and inflation, or it can speed up growth and inflation. But it can't offset an energy supply shock, which weakens growth at the same time that it raises inflation," Adams added.

Investors are now pricing in a less than 40% chance of even one Fed rate cut this year, compared with an expectation for two before the start of the U.S.-Israeli war on Iran.

The Middle East conflict pushed Brent crude futures past $110 a barrel on Thursday and has shown little sign of easing, keeping energy prices elevated and reviving inflation risks that have upended rate expectations around the world.

With average U.S. national gas prices now approaching $4 a gallon at the pump, according to motorist advocacy group AAA, the expectation among consumers and investors is that inflation is going to rise, but how much and how quickly is unclear.

Fed Chair Jerome Powell sounded a cautious note on Wednesday at the post-meeting press conference.

"The thing I really want to emphasise is that nobody knows: the economic effects could be bigger, they could be smaller; they could be much smaller or much bigger; we just don't know," Powell said. (Reporting by Rae Wee in Singapore and Amanda Cooper in London; Editing by Sumana Nandy and Alexander Smith)