Removes extraneous word "said" in 16th paragraph, shortens quote attribution to "said Bianco of BondBloxx" in 16th paragraph

By Gertrude Chavez-Dreyfuss

NEW YORK, Jan 24 (Reuters) - U.S. Treasury yields fell on Friday, weighed down by weaker-than-expected data in the world's largest economy on consumer sentiment and business activity, that backed expectations the Federal Reserve will cut interest rates at least once this year.

Investors also continued to await more definitive policies on tariffs from the new administration.

In afternoon trading, the benchmark U.S. 10-year yield US10YT=RR slipped 1.6 basis points (bps) to 4.619%. It was last up 1 bp so far this week. The yield on the 30-year bond US30YT=RR, on the other hand, was down 2.6 bps on the day at 4.843%, but rose 2 bps this week.

"There are more reasons Treasury yields stay high: first, the U.S. economy is stronger and inflation is probably higher," said Vincent Reinhart, chief economist, at BNY Investments.

"There will also be a lot of policy uncertainty not just with what the U.S. does, but also what our trading partners do in response to tariffs. There will also be a lot more debt and when you put that all together, you have 10-year yields that are high and will be higher."

U.S. yields, however, extended their fall earlier in the session after data showed business activity slowed to a ninth-month low in January amid rising price pressures, although firms reported that they boosted hiring.

S&P Global's flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, eased to 52.4 this month. That was the lowest since April and was down from 55.4 in December.

In a separate report, the University of Michigan's final estimate on consumer sentiment fell to 71.1 from a previous estimate of 73.2.

Following the U.S. data, rate futures priced in about 42 basis points (bps) of rate cuts in 2025, up from 39 bps late Thursday, according to LSEG data. The market also factored in a 71% chance that the next rate reduction would likely take place at the Fed's June meeting.

"I am not reading too much into today's movement in Treasuries," said JoAnne Bianco, partner and senior investment strategist at BondBloxx Investment Management in Chicago. "We're off the recent peaks on the long end since the CPI (consumer price index) news and this is not a big week for economic data."

A report last week showed that the growth in core CPI, excluding the volatile food and energy components, slowed in December, rising just 0.2% after a 0.3% increase in the previous month. Prior to December, the so-called core CPI had risen 0.3% for four straight months.

On the short end of the curve, the two-year US2YT=RR Treasury yield, which is typically tied to monetary policy, fell 2.8 bps to 4.257%.

FOCUS ON TARIFFS

Pronouncements on tariffs, meanwhile, remained a focus in the bond market because of their impact on inflation.

President Donald Trump late Thursday softened his stance on China with respect to tariffs. In an interview with Fox News, Trump said he would rather not have to use tariffs against China and that he thought he could reach a trade deal with the world's second-largest economy.

That was a massive step back from his campaign threat of imposing 60% duties on Chinese imports.

"We're going to continue to get a lot of headlines and back and forth here," said Bianco of BondBloxx. "It's really hard to factor that in a meaningful way until we see something more concrete."

The U.S. Treasury yield curve on Friday, meanwhile, was little changed from the previous session, with the gap between two-year and 10-year yields hitting 42 bps US2US10=TWEB, compared with 35.1 late Thursday.

The curve, which was last at 35.1 bps, has steepened for a third straight day. The overall trend in an easing cycle remained tilted toward a steeper curve, analysts said, with yields on longer-dated Treasuries higher than short-term maturities.

Fed policymakers next week are expected to keep interest rates on hold, although the bigger debate will be how the central bank confronts early statements from Trump, including demands that the Fed continue lowering borrowing costs.

The Fed is scheduled to hold a policy meeting on Tuesday and Wednesday.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Nick Zieminski, Andrea Ricci and Marguerita Choy)

((gertrude.chavez@thomsonreuters.com; 646-301-4124))