SYDNEY, Sept 13 (Reuters) - Treasury yields fell in Asia

on Friday while rate futures rallied in reaction to media

reports suggesting the Federal Reserve's decision on whether to

cut by 25 or 50 basis points next week would be a close call.

Both the Wall Street Journal and the Financial Times

reported it might be a line ball call next Wednesday, surprising

markets that had assumed the Fed would start with a cautious

quarter-point move.

Fed fund futures swung to imply a 43% chance of a

half-point cut, up from 28% early in the session and just 14% a

day before. Contracts from November out to August all rallied by

4 to 5 basis points and now imply 114 basis points of easing by

Christmas, and another 142 basis points in 2025.

Yields on two-year Treasury notes fell 4 basis

points to 3.601%, and back toward the recent low of 3.55%.

Ten-year yields dropped 3 basis points to 3.646%,

just above their trough of 3.605%.

The WSJ report suggested Fed policymakers were nervous about

keeping rates too high for too long given inflation and hiring

were slowing down, though it did not quote any inside sources.

While some readings on consumer and producer prices were

slightly higher than expected this week, the details pointed to

a benign impulse for the core personal consumption expenditure

price index that the Fed focuses on.

"Based on details in the CPI and PPI reports, we estimate

that the core PCE price index rose 0.17% in August, vs. 0.20%

previously, corresponding to a year-over-year rate of +2.69%,"

said analysts at Goldman Sachs in a note.

Economists at Capital Economics noted such an outcome would

leave the three-month annualised rate for core PCE at 1.9%,

under the Fed's 2% target, and the six-month annualised rate at

2.3%.

"The Fed can have greater confidence now that inflation has

been tamed, but with housing cost inflation refusing to roll

over, the bar to cutting interest rates aggressively remains

quite high," said Paul Ashworth, chief North America economist

at Capital.