(Updated at 2:41 a.m. ET/1841 GMT)

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Retail sales rise 0.4% in September, beating estimates

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Weekly jobless claims drop by 19,000 to 241,000

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Philadelphia Fed's manufacturing index rises to 10.3 in

October

By Chuck Mikolajczak

NEW YORK, Oct 17 (Reuters) - U.S. 10-year Treasury

yields climbed on Thursday after economic data pointed to an

economy on solid footing, easing market expectations for Federal

Reserve aggressiveness in cutting interest rates.

The Commerce Department said retail sales rose 0.4% last

month, above the 0.3% estimate of economists polled by Reuters,

and after an unrevised 0.1% gain in August, in a sign consumer

health remains resilient.

In other data, the Labor Department said weekly initial jobless

claims dropped by 19,000 last week to 241,000 and below the

260,000 estimate, but could remain at elevated levels in the

coming weeks due to the effects of Hurricanes Helene and

Milton.

"It's just one thing after another that is hitting the

economy, but so far U.S. growth is defying gravity," said Brian

Jacobsen, chief economist at Annex Wealth Management in

Menomonee Falls, Wisconsin. "Monetary policy is still

restrictive, the cuts are taking the foot off the brake, not

pushing on the accelerator. We're still a long way from neutral

so the Fed can cut, but it doesn't have to be in a hurry."

In addition, the Federal Reserve Bank of Philadelphia's

monthly manufacturing index rose to 10.3 in October from 1.7 in

the prior month and above the 3.0 estimate as manufacturing

activity in the U.S. Mid-Atlantic region expanded more than

expected.

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

rose 7.9 basis points to 4.095%. The 10-year is on

track for its biggest one-day jump since Oct. 4.

Yields have experienced a sharp run higher since a strong

jobs report in early October, but have eased in the last three

sessions, with the 10-year yield holding below the 2-1/2 month

high of 4.12% hit last week.

The yield on the 30-year bond jumped 9.4 basis

points to 4.393% and was on pace for its biggest daily climb

since Aug. 6.

While the data still gives the Fed enough cushion to continue

cutting rates, investors now see less of a chance for rate cuts

at the two remaining meetings this year.

Markets are now pricing in a 90.3% chance for a cut of 25 bps at

the Fed's November meeting, down from 93.7% in the prior

session, with only an 9.7% chance the central bank will hold

rates steady, according to CME's FedWatch Tool.

Expectations for a cut of 25 bps at the December meeting were

scaled back to 73.6% from 85.6% on Wednesday.

Earlier on Thursday, the European Central Bank (ECB) cut

interest rates for the third time this year, saying inflation in

the euro zone was increasingly under control while the outlook

for the wider economy was worsening.

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 11.3 basis points.

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

moves in step with interest rate expectations, rose 4.5 basis

points to 3.98%.

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

Inflation-Protected Securities (TIPS) was last at

2.246% after closing at 2.219% on Oct. 16.

The 10-year TIPS breakeven rate was last at

2.3%, indicating the market sees inflation averaging about 2.3%

a year for the next decade.