* July payrolls likely up by 80,000 jobs, Reuters poll shows

* Weekly jobless claims edge up; July layoffs at 2-year low

* Iran tells Gulf states infrastructure could be targeted

(Updated in New York afternoon time)

By Karen Brettell

NEW YORK, Aug 6 (Reuters) - U.S. Treasury yields increased

on Thursday as oil prices rose on concerns about U.S. and

Israeli access to the Strait of Hormuz and ahead of Friday's

highly anticipated July jobs report.

Oil prices rose by more than $3 a barrel on Thursday on news

that an Iranian parliament committee is reviewing a bill that

would ban U.S. and Israeli vessels from the Strait of Hormuz and

fine violators up to a fifth of the value of their cargo.

Iran has made a concerted diplomatic push with Gulf states,

telling them explicitly that it will hit their oil, power and

water plants unless they convince U.S. President Donald Trump to

end U.S. strikes on Iran and instead seek a negotiated end to

the war that began in February.

Treasury yields fell earlier this week on optimism that a

deal to reopen the strait would keep oil prices in check - a key

focus for markets given the risk that higher oil could reignite

already-elevated consumer price inflation.

"It's better that the strait is open than it is not. But the

longer that this back and forth goes on, the more I think it

weighs on inflation expectations, it'll weigh on growth," said

Will Compernolle, macro strategist at FHN Financial.

The 2-year note yield, which typically moves in

step with Federal Reserve interest rate expectations, rose 7.26

basis points to 4.252%.

The yield on benchmark U.S. 10-year notes rose

5.67 basis points to 4.674%.

The yield curve between 2- and 10-year notes

was at 42 basis points.

Traders are also waiting on July's payrolls report for

confirmation that the labor market remains strong.

Employers are expected to have added 80,000 jobs last month,

according to economists polled by Reuters, while the

unemployment rate is expected to hold steady at 4.2%.

With Fed policymakers still focused on elevated inflation,

the data may not move markets much either way.

"Even if there is a weak report tomorrow (Friday), people

will consider it noise for the time being because there are so

many other signs of strength and it doesn't seem to be guiding

the inflation trajectory or the Fed's policy path," Compernolle

said.

Fed funds futures traders are pricing in 59% odds of a rate

hike at the Federal Reserve's September meeting.

Data on Thursday showed that the number of Americans filing

claims for unemployment benefits increased slightly last week,

while layoffs dropped to a two-year low in July, consistent with

a stable labor market. Other data showed worker productivity

grew faster than expected in the second quarter, curbing gains

in labor costs.