*

Government shutdown delays key labor data release

*

ISM data adds evidence of sluggish labor market

*

Fed officials show diverse views on interest rate path

By Davide Barbuscia

NEW YORK, Oct 3 (Reuters) - U.S. Treasury yields were

marginally higher in thin trading on Friday, as the postponement

of key labor data because of the U.S. government shutdown left

the market without much directional conviction.

With the U.S. government shutting down on Wednesday after

lawmakers failed to reach a funding deal, the Labor Department

halted the release of a monthly jobs report, scheduled for

Friday, that was crucial for the Federal Reserve and for

investors to assess the health of the U.S. economy and the

direction of interest rates.

That left market participants scrambling to get a picture of

the economy, using alternative estimates and private surveys

released earlier this week that continued to point to a gradual

slowdown in the jobs market.

"We're stuck in a world where we have to live with the

private data and not the government data, and so that causes a

good deal of uncertainty around what we should be doing

directionally," said Art Hogan, chief market strategist at B.

Riley Wealth.

The most-watched datapoint on Friday was the Institute for

Supply Management's release of the September Services Purchasing

Managers' Index (PMI). It showed services sector activity

stalled in September amid a slowdown in new orders, while

subdued employment added to evidence of sluggish labor market

conditions.

Treasury yields, which move inversely to prices, were not

much changed after the ISM data, except for a brief drop in

two-year yields.

Meanwhile, investors were also paying attention to comments

from Fed officials showing a diversity of views within the

central bank on the likely path of interest rates.

Chicago Fed President Austan Goolsbee on Friday said he was

hesitant to commit to a series of interest rate cuts with

inflation still running above the central bank's 2% target. On

the other hand, Fed Governor Stephen Miran, a top economic

advisor to President Donald Trump, argued for much easier

monetary policy.

Rates futures traders on Friday were assigning a 97%

probability to a 25-basis-point interest rate cut by the Fed

later this month, CME Group data showed.

Benchmark 10-year yields were last at 4.113%,

about two basis points higher on the day, while two-year yields

stood at 3.568%, less than two points higher.

The uptick in yields on Friday morning was marginal, said

Hogan. "It's one of those weeks where you have to look at the

range versus the daily change in basis points, and the range

seems to be lower," he added.

Since the beginning of the shutdown, 10-year and two-year

yields have decreased by over three basis points.

Besides the uncertainty due to lack of official data,

the shutdown itself could reduce economic growth by 0.1 to 0.2

percentage point for every week the government is closed, S&P

Global Ratings Economics estimated.