TREASURIES-Yields rise as Iran tensions fan inflation fears

* Fed expected to hold rates as oil-driven inflation risks assessed

* April jobs data beats forecasts, reducing likelihood of near-term rate cuts

* Upcoming CPI and PPI data, plus $125 billion in Treasury auctions, in market focus

By Karen Brettell

NEW YORK, May 11 (Reuters) - U.S. Treasury yields edged higher on Monday after President Donald Trump rejected Iran's response to a U.S. peace proposal, pushing oil prices higher and stoking concerns about a renewed increase in inflation.

"The focus continues to be Iran with no real deal over the weekend," said Tom di Galoma, managing director of global rates trading at Mischler Financial Group.

The Federal Reserve is expected to keep interest rates on hold for the foreseeable future as it assesses how higher oil prices will feed through to inflation that is already running above the central bank's 2% annual target. Stronger than expected jobs data has also removed the prospect that a weakening labor market could revive the prospect of near-term rate cuts. Friday's jobs report for April showed that employers added 115,000 jobs last month, above economists' projections for a 62,000 gain.

The 2-year note yield, which typically moves in step with Fed interest rate expectations, rose 2.1 basis points to 3.914%.

The yield on benchmark U.S. 10-year notes rose 1.8 basis points to 4.382%.

This week's main economic focus will be consumer and producer price inflation, due on Tuesday and Wednesday, respectively, which will be closely watched for signs that higher oil costs are feeding through to broader prices.

"With this conflict, I have a feeling that those numbers are going to be a little bit higher than the market expects," said di Galoma.

Headline CPI is expected to have risen 0.6% in April for a 3.7% annual gain, while core prices are forecast to have increased 0.3% for a 2.7% annual rise, according to the median estimate of economists polled by Reuters.

Headline PPI is also likely to have risen 0.5% in April for a 4.9% annual gain, while core prices are forecast to have increased 0.3% for a 4.3% annual rise.

The Treasury will sell $125 billion in coupon-bearing supply this week, including $58 billion in three-year notes on Monday, $42 billion in 10-year notes on Tuesday and $25 billion in 30-year bonds on Wednesday.

(Reporting by Karen Brettell Editing by Nick Zieminski)