(Adds new comment, more U.S. data, bullets, updates yields)

By Gertrude Chavez-Dreyfuss

NEW YORK, July 3 (Reuters) - U.S. Treasury yields rose

on Thursday after data showed the world's largest economy

created more jobs than expected last month, supporting the

Federal Reserve's patient stance on cutting interest rates.

In late morning trading, U.S. two-year yields, which track

interest rate expectations, rose 8.5 basis points to 3.874%

, while the benchmark 10-year yield gained 4.1 bps to

4.334%.

Volume has thinned, however, following the nonfarm payrolls

report, with U.S. bond markets closed on Friday for the July 4th

holiday.

On the political front, Republicans in the U.S. House of

Representatives advanced President Donald Trump's massive "One

Big Beautiful Bill" toward a final yes-or-no vote on Thursday,

overcoming internal party divisions over its cost.

The bill, if approved, would raise the debt ceiling by $5

trillion, which will allow the U.S. Treasury to increase bill

auction sizes in the coming weeks.

But Thursday's jobs report was the market's focus.

The report showed U.S. nonfarm payrolls increased by 147,000

jobs last month after an upwardly revised 144,000 gain in May.

Economists polled by Reuters had forecast payrolls rising

110,000 following a previously reported 139,000 gain in May.

The unemployment rate fell to 4.1% from 4.2% in May.

Economists had expected the jobless rate to tick up to 4.3%.

The headline numbers, however, obscure weaker details of the

report, analysts said.

Stan Shipley, fixed income strategist at Evercore ISI,

pointed to state and local government employment accounting for

50% of the overall gain. He also added that private service job

gains were only 68,000 and private goods producing jobs advanced

just 6,000, while temporary employment slipped.

The odds of a July cut shrank to 4.7% after the jobs data, from

about 25% before the report's release. Chances of a September

easing also dropped to 75%, compared with 98% just before.

There were only about 50 bps rate declines priced in 2025, from

about 67 bps before the report.

"You look at it at the headline number level and conclude

that the fears around the softer labor markets to this point

have continued to be worse than the reality," said Jim Baird,

chief investment officer, at Plante Moran Financial Advisors at

Southfield, Michigan.

"The job market appears to be hanging in there. I'd say

that you have to look at the next layer of the data and when you

see the pretty marked slowdown in job creation in the private

sector, there is still a cautionary note there."

The yield curve flattened after the data, with the spread

between two-year and 10-year yields at 45.4 bps

compared with 49.2 bps late Wednesday, as the bond market priced

in a likely delay in Fed easing.

Other economic data such as weekly jobless claims and services

sector index showed a still solid economy. Initial claims fell

to 233k in the last week of June, the lowest since mid-May, from

237,000 in the previous week, suggesting that the layoff rate

remained low.

U.S. services sector activity, on the other hand,

picked up

in June as orders rebounded, but employment contracted for

the third time this year, underscoring the impact of policy

uncertainty on businesses.

The Institute for Supply Management's (ISM)

nonmanufacturing purchasing managers index (PMI) increased to

50.8 last month from 49.9 in May. Economists polled by Reuters

had forecast the services PMI rising to 50.5.