(Adds comment, updates yields)

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US job openings fall in July

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US yield curve flattens after jobs data

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US rate cut probability climbs to 96% in September

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Fed's Waller repeats call to cut rates later this month

By Gertrude Chavez-Dreyfuss

NEW YORK, Sept 3 (Reuters) - U.S. Treasuries advanced on

Wednesday, pushing their yields lower, after data showed job

openings fell in July, reflecting a softening labor market that

reinforced expectations of an interest rate cut by the Federal

Reserve later this month.

Dovish comments from Fed Governor Christopher Waller and

Atlanta Fed President Raphael Bostic added to the bullish tone

in U.S. government bonds.

In afternoon trading, U.S. two-year yields, which are tied to

interest rate policy, slid 4.1 basis points (bps) to 3.617%

. The benchmark 10-year yield was also down, falling 6

bps to 4.217%.

The Bureau of Labor Statistics' Job Openings and Labor Turnover

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

demand, fell to 7.181 million by the last day of July.

Economists polled by Reuters had forecast 7.38 million unfilled

jobs.

Hiring increased 41,000 to 5.308 million in July. Layoffs

rose 12,000 to 1.808 million.

"Demand picked up really swiftly in the U.S. Treasury

market right after the JOLTS data and that really changed the

tone," said Chip Hughey, managing director of fixed income at

Truist Advisory Services in Richmond, Virginia.

"The report does add to speculation that the Fed will be

able to resume rate cuts this month. It also suggests that the

labor market is not a meaningful source of inflation at this

point."

U.S. 30-year bond yields sank 7.4 bps to 4.896%,

after earlier hitting 5% earlier in the session, the highest in

about 1-1/2 months.

"There was decent buying once the 30-year hit 5% and we're going

to continue to see buyers around that level," said Tom di

Galoma, managing director of rates and trading at Mischler

Financial in Park City, Utah.

Following the JOLTS report, the Treasury yield curve

flattened, with the gap between two-year and 10-year yields

narrowing to 59.5 bps, compared with 62 bps late

on Tuesday. Earlier on Wednesday, the curve hit 63.8 bps, its

widest spread since April.

The curve showed a bull-flattening trend, referring to a

scenario in which long-term interest rates are falling faster

than those on the short end of the curve. That, for now,

reflects a slight decline in inflation expectations and often

precedes the Fed cutting interest rates.

U.S. rate futures now widely expect the Fed to lower rates this

month, pricing in a 96% chance of a 25-bp cut at the end of the

two-day policy meeting on September 17, according to the CME

Group's FedWatch tool. That was at 92% late on Tuesday.

Traders have also priced in about 59 bps of easing this

year, up from 56 bps on Tuesday.

Adding to the rise in easing odds were comments from Fed

Governor Waller, who repeated his call on Wednesday for an

interest-rate cut in September given the weakening in the labor

market. He said the pace of the cuts will depend on what happens

next in the economy.

Waller was one of two Fed governors who dissented in favor

of a rate cut in July, the other being Michelle Bowman.

The Fed's Bostic was also slightly dovish on Wednesday. He

said high inflation remains the U.S. central bank's main risk,

though growing signs of a weaker labor market still likely

warrant a single 25-bp cut this year.

The focus now shifts to Friday's nonfarm payrolls report,

with a Reuters poll showing a forecast of 75,000 new jobs

created last month, compared with 73,000 in July. The

unemployment rate was seen to have ticked up to 4.3% from 4.2%

in July.

"The market is waiting to see how strong or weak the payrolls

data would be," said Mischler's di Galoma. "If it's weak, the

curve can probably steepen some more. And there's a good chance

that we will see the 30-year yield rise above 5% again."

(Reporting by Gertrude Chavez-Dreyfuss, Editing by Nick

Zieminski, Nia Williams and Chizu Nomiyama )