(Adds analyst comment, details on inflation data, Fed rate cut

odds, byline; updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, Dec 20 (Reuters) - U.S. Treasury yields fell

on Friday after data showed inflation in the world's largest

economy moderately cooled last month, backing the Federal

Reserve's interest rate cut of a quarter of a percentage point

earlier this week and bolstering expectations of two more

reductions next year.

The benchmark 10-year yield slid 6.6 basis points (bps) to

4.504%. On Thursday, it hit a 6-1/2 month high of

4.594% as the market priced in more inflation pressures under a

Donald Trump administration in 2025, with tariffs and tax cuts.

On the shorter end of the curve, the two-year yield,

which is more sensitive to the policy-rates outlook, fell 5.8

bps to 4.261%.

The report showed that monthly inflation slowed in November

after showing little improvement in recent months. The personal

consumption expenditures (PCE) price index rose 0.1% last month

after an unrevised 0.2% gain in October.

U.S. consumer spending, however, rose in November. Consumer

spending, which accounts for more than two-thirds of U.S.

economic activity, grew 0.4% last month after a downwardly

revised 0.3% gain in October.

Following the data, U.S. rate futures have priced in 44 bps

of rate easing or close to two cuts of 25 bps, LSEG calculations

showed. Futures showed just 37 bps of rate reductions in 2025

late on Thursday.

The earliest rate cut is now seen at the March meeting

with a 54% probability, LSEG data showed. On Thursday, it showed

that the earliest rate move would be June, with a 65%

likelihood.

"November inflation was more benign than expected but

the stickiness of some categories supports the Fed's hesitancy

to materially lower rates next year," wrote Jeffrey Roach, chief

economist at LPL Financial, in emailed comments.

"The economy continues to grow from strong consumer

demand as income growth and the wealth effect from higher

portfolio values give consumers capacity to spend."