(Updates as of 15:12 EDT)

By Matt Tracy

March 21 (Reuters) - U.S. Treasury yields rose on

Thursday after the release of strong economic data, including a

report showing a drop in new claims for unemployment benefits,

added to questions about the timing of expected interest rate

cuts this year.

Yields on benchmark 10-year notes ticked up

slightly to 4.272%. They closed at 4.271% on Wednesday after the

Federal Reserve issued a policy statement and new economic

projections affirming that it was still on track to cut interest

rates three times this year.

Two-year yields ticked up to 4.636%, from their

close of 4.604% on Wednesday.

The inversion in the yield curve between two-year and

10-year notes narrowed by 1.5 basis points to

minus 36 basis points.

The release of recent data, including reports showing

inflation is not falling as fast as had been hoped by Fed

policymakers, has raised questions among traders about the

widely expected June start to the U.S. central bank's rate cuts.

Fed Chair Jerome Powell said on Wednesday that despite

recent inflation data coming in hotter than expected, the

numbers "haven't really changed the overall story, which is that

of inflation moving down gradually, on a somewhat bumpy road."

A string of economic data on Thursday helped boost yields.

The U.S. S&P Global manufacturing purchasing managers'

index improved in early March to 52.5 from 52.2 in February,

while the U.S. Labor Department reported the number of people

filing

new claims

for unemployment benefits unexpectedly fell last week,

suggesting job growth remained strong in March. The National

Association of Realtors also reported that U.S.

existing home sales

increased to a one-year high in February.

"Manufacturing has been a weak sector compared to

services over this time, so a little bit of strength there

certainly didn't help," said Ellis Phifer, managing director of

fixed income research at Raymond James.

"The Fed has also been more tuned back towards the job

market and its strength," he said. Phifer added that "if nothing

else, it's the market digesting the flatter dot-plot curve that

the Fed gave us yesterday, showing the three cuts this year but

maybe taking a little bit off next year."

Traders in federal funds futures have increased their bets

that the U.S. central bank will cut rates by June to 73%,

according to CME Group's FedWatch tool.

While further stronger-than-expected inflation prints could

change the Fed's course, Powell's dovish comments assuaged some

traders' concerns about the rate-cut plan.

"The timing and pace is what's a little frustrating, but as

long as it's moving in the right direction, the Fed should

remain on track for cuts this year," said Jack McIntyre,

portfolio manager for global fixed income at Brandywine Global.

"I feel like inflation has had a couple of little bumps and

that's to be expected. But I think, as we have a conversation

six months from now, inflation is still going to be well

behaved," he added.

The U.S. Treasury Department's $16 billion auction of

10-year Treasury Inflation-Protected Securities (TIPS) on

Thursday resulted in a high yield of 1.932% and a bid-to-cover

ratio of 2.35. This compares to a high yield of 1.810% and

bid-to-cover ratio of 2.62 for the previous auction in January.

The Treasury also auctioned $85 billion in four-week bills

and $85 billion in eight-week bills.