NEW YORK, Sept 13 (Reuters) - U.S. Treasury yields moved

lower on Friday as the possibility of a supersized interest rate

cut by the Federal Reserve next week gained ground again.

Former New York Federal Reserve President Bill Dudley said

on Thursday there was a strong case for a 50 basis point

interest rate cut at the Fed's Sept. 17-18 rate-setting meeting.

Market participants also mentioned news articles in the

Financial Times and the Wall Street Journal, which highlighted

that the size of the first cut could be a close call for Fed

officials, as factors that spurred bets on a large cut next

week.

The probability of a 50 basis point cut rose to 51% on

Friday from 28% on Thursday, CME Group data showed.

Tony Farren, managing director in rates sales and trading at

Mischler Financial Group, said he was skeptical about the

repricing and expected yields to turn higher.

"I'm looking for the market to pull back here; I just don't

see the economic and inflation data justifying a 50 basis point

rate cut," he said.

Others echoed that view.

"We maintain that a quarter-point initial cut is the path of

least resistance, although it is clear that 50 bp is on the

table and will be part of the Fed's conversation," rates

strategists at BMO Capital Markets said in a note.

A release by the Labor Department's Bureau of Labor

Statistics showed on Friday U.S. import prices dropped by the

most in eight months in August amid lower costs for fuels and

food products, suggesting domestic inflation will continue to

subside in the months ahead. Two-year yields declined briefly

after the data.

Benchmark 10-year yields were last at 3.662%,

down from 3.68% on Thursday. Two-year yields, more

closely linked to monetary policy expectations, declined to

3.578% from 3.648% on Thursday.

The curve comparing 10- and two-year yields,

which investors look at closely for its signals on the economic

outlook, widened to 8.7 basis points, the steepest it has been

since July 2022.