(Updated at 1500 EDT/1900 GMT)

By Karen Brettell

May 13 (Reuters) - U.S. Treasury yields fell on Monday

but held in a tight trading range as investors waited on highly

anticipated Consumer Price Index (CPI) data for April due on

Wednesday, which analysts say will be key for Federal Reserve

policy for the rest of this year.

Consumer prices were higher than anticipated in the first

quarter, which suggested that the U.S. central bank might make

fewer rate cuts this year.

Weaker-than-expected jobs growth in April then led investors

to reignite bets for two 25 basis point cuts this year, but that

view is heavily dependent on inflation softening.

"It is difficult to overstate the importance of CPI for the

Fed between now and the end of the year," said Ian Lyngen, head

of U.S. rates strategy at BMO Capital Markets in New York.

"This is the one data print that will either confirm that

the last mile on inflation is going to be very difficult, or it

will mark the resumption of the trend that was in place towards

easier inflation in the second half of last year," Lyngen added.

Wednesday's inflation report is likely to guide the Fed's

policy outlook at its June 11-12 meeting, when officials will

update their economic and interest rate projections.

"If the data comes in stronger than expected, it will be

very difficult for the Fed to signal perhaps that 'we're going

to do 50 basis points' worth of rate cuts' without an increase

in the unemployment rate," Lyngen said.

Economists polled by Reuters expect the closely watched core

CPI to rise by 0.3% in the month, down from 0.4% in March, for

an annual gain of 3.6%, down from 3.8%.

Fed Vice Chair Philip Jefferson said on Monday that in an

otherwise healthy economy the central bank should hold steady on

monetary policy until it becomes clear that inflation is again

moderating back to the 2% target.

The U.S. central bank will cut its key interest rate twice

this year, starting in September, according to a stronger

majority of economists polled by Reuters who broadly raised

their inflation forecasts for a second consecutive month.

Benchmark 10-year note yields were last down 2

basis point at 4.623%.

Two-year yields fell 1 basis points to 4.857%.

The inversion in the yield curve between two-year and

10-year notes was little changed on the day at

minus 37 basis points.

Other U.S. data this week will include producer prices for

April on Tuesday and retail sales for April on Wednesday.

Americans last month braced for generally higher inflation

pressures over the next few years and accelerating home price

increases, according to a report released on Monday by the

Federal Reserve Bank of New York.