TREASURIES-Yields mixed after jobs data lifts Fed hike odds

(Updated in New York afternoon time)

* Stronger jobs data boosts Fed rate hike expectations

* Futures show 70% rate hike chance by December

* Core consumer prices expected to accelerate annually

By Karen Brettell

NEW YORK, June 8 (Reuters) - U.S. Treasury yields were mixed on Monday, with two-year yields pulling back from a 15-month high reached on Friday after a stronger-than-expected jobs report bolstered bets that the Federal Reserve will raise interest rates later this year.

Concern about a softening labor market had previously been seen as a constraint on rate increases, even as inflation continues to run above the Fed's 2% annual target. Friday's data shifted that picture: fed funds futures traders now see a 70% chance of a hike by December. "The front end now of the Treasury yield curve has priced in a rate hike," said Kevin Flanagan, head of investment strategy at WisdomTree.

That said, Flanagan added, "I don't think the Fed is there yet."

"I think you would need to see more jobs reports and CPI reports like we're going to get this week that would suggest perhaps that the Fed does need to make that move and move policy back into a rate hike mode," Flanagan said. Elevated oil prices driven by supply disruptions stemming from the Iran war have stoked fears that inflation could become more entrenched in consumer prices.

But many analysts see Fed rate hikes as unlikely unless inflation expectations rise further, and inflation becomes embedded in core consumer prices.

"We do have this obvious push from energy inflation that's increasing the headline numbers and pushing us further away from target. But I think on the other side of this, there is a pretty steep decline in energy prices that's eventually going to come," said Thomas Simons, chief U.S. economist at Jefferies.

Simons expects consumer price inflation to fall back below 2% within a year as this year's inflation spikes make next year's figures look lower by comparison.

Consumer price inflation data on Wednesday is expected to show that core consumer prices eased on a monthly basis in May to 0.3% from 0.4% in April, but accelerated on an annual basis to 2.9% from 2.8% during the month, according to economists polled by Reuters.

The 2-year note yield, which typically moves in step with Fed interest rate expectations, fell 0.9 basis points to 4.153%.

The yield on benchmark U.S. 10-year notes rose 1.4 basis points to 4.55%.

The yield curve between 2- and 10-year notes steepened to 39.4 basis points.

The Treasury will sell $119 billion in new coupon-bearing supply this week. It will include $58 billion in three-year notes on Tuesday, $39 billion in 10-year notes on Wednesday and $22 billion in 30-year bonds on Thursday. (Reporting by Karen Brettell; Editing by Jan Harvey)