*

Iran fired ballistic missiles at Israel in retaliation for

Hezbollah campaign

*

JOLTS report shows job openings rebounded by 329,000 to

8.040

million

*

Manufacturing PMI unchanged at 47.2, indicating sector

contraction

(Updated at 3:01 p.m. ET/1901 GMT)

By Chuck Mikolajczak

NEW YORK, Oct 1 (Reuters) - U.S. Treasury yields fell on

Tuesday as Iran launched missiles at Israel which boosted demand

for safe-haven assets, but were off earlier lows on hopes any

further escalation was not imminent.

Iran

fired a salvo

of ballistic missiles at Israel on Tuesday in retaliation

for Israel's campaign against Tehran's Hezbollah allies in

Lebanon, while Israel vowed a "powerful response."

A warning by the U.S. that the launch was likely pushed

yields to session lows, with the 10-year dropping to 3.696%, its

lowest since Sept. 18, and the 2-year falling to 3.572%.

U.S. National Security Adviser Jake Sullivan said the strike

appeared to have been defeated and Iran and its proxies will

continue to be monitored for further threats.

The yield on the benchmark U.S. 10-year Treasury note

was down 6.3 basis points to 3.739%.

"It was a reaction to see what the response was going to be

based on the information, based on some of the headline news,

everybody was on kind of standby, and then once you started to

see things play out the market was able to settle down," said

Jim Barnes, director of fixed income at Bryn Mawr Trust in

Berwyn, Pennsylvania.

"Once you have your initial response, now we'll just wait

and see and hopefully this pause will hold and then the market

will change their attention now back to some of the morning

data, which obviously has more and longer-term implications for

yields."

In U.S. economic data, the Job Openings and Labor Turnover

Survey, or JOLTS report, showed job openings, a measure of labor

demand, rebounded by 329,000 to 8.040 million, but hiring was

soft and consistent with a cooling labor market.

The manufacturing sector held steady at weaker levels in

September, as the Institute for Supply Management (ISM) said its

manufacturing PMI was unchanged at 47.2 last month, slightly

below the 47.5 estimate of economists polled by Reuters. A PMI

reading below 50 indicates contraction in the manufacturing

sector.

The yield on the 30-year bond fell 5.5 basis points

to 4.078%.

Yields had risen on Monday after Federal Reserve Chair Jerome

Powell suggested the central bank will take a gradual approach

in cutting interest rates.

A closely watched part of the U.S. Treasury yield curve

measuring the gap between yields on two- and 10-year Treasury

notes, seen as an indicator of economic

expectations, was at a positive 12 basis points after dropping

to a positive 9.6, its flattest since Sept. 19.

The two-year U.S. Treasury yield, which typically

moves in step with interest rate expectations, shed 3.4 basis

points to 3.617%.

The breakeven rate on five-year U.S. Treasury

Inflation-Protected Securities (TIPS) was last at

2.094% after closing at 2.086% on Sept. 30.

The 10-year TIPS breakeven rate was last at

2.188%, indicating the market sees inflation averaging about

2.2% a year for the next decade.