(Rewrites throughout, adds analyst comment, auction results)

*

Investors optimistic about potential rate cuts later this

year

after Powell's comments

*

Although fragile, Israel-Iran ceasefire pushes oil prices

lower

*

Demand at $69 billion two-year notes auction tepid, with

high

primary dealers stake

By Tatiana Bautzer, Davide Barbuscia

NEW YORK, June 24 (Reuters) - U.S. Treasury yields

declined on Tuesday, with the two-year and 10-year notes hitting

seven-week lows, as a weaker than anticipated reading of

consumer confidence bolstered hopes of a near-term interest rate

cut and oil prices continued to fall amid fragile optimism over

a ceasefire between Israel and Iran.

President Donald Trump on Monday announced a ceasefire between

Israel and Iran that offered relief to rattled investors after a

12-day conflict that bruised global risk assets and stoked

inflation fears. Markets welcomed the move and largely brushed

off ceasefire violations by both sides.

Oil prices fell almost 6% to a two-week low on Tuesday on

expectations that the ceasefire will reduce the risk of oil

supply disruptions in the Middle East.

Although the price of bonds, which moves in the opposite

direction of yields, had fallen briefly in the morning, it rose

after U.S. Fed Chair Jerome Powell said on Tuesday he was open

to the idea that any possible inflation kindled by Trump's

tariffs may prove to be less severe than thought.

Those comments followed recent remarks from two Fed

officials, both Trump appointees, who said rates could fall as

soon as the July meeting, given that inflation has not yet risen

in response to tariffs.

Adding downward pressure on yields, U.S. consumer confidence

deteriorated in June, the Conference Board said on Tuesday. "The

continued selloff in the crude oil market and the much weaker

than anticipated reading of consumer confidence were news items

helping out" the market, said Lou Brien, strategist at DRW

Trading Group in Chicago.

"(Powell) is acknowledging that their forecasts could be

wrong and if you look at the hard data itself you could probably

argue that the Fed should be cutting right now," said Lawrence

Gillum, chief fixed income strategist for LPL Financial. "He's

open to being wrong, which is good," added Gillum.

Expectations for a 25 basis-point interest rate cut in July

were roughly unchanged at 20% on Tuesday, CME Group data showed,

while bets on a first 25-bps cut in September stood at 70%,

compared with 67% on Monday.

TEPID AUCTION DEMAND

Although the yield on the $69 billion two-year note auction

was the lowest in this kind of offerings this year, at 3.786%,

demand was tepid, DRW's Brien said.

"The fact that the primary dealers ended up buying 13.2% of

the sale, a percentage that is among the higher seen over the

last year, is also a negative when judging demand," he added.

The higher the percentage bought by the primary dealers, the

less demand from the other auction participants.

Benchmark 10-year Treasury yields were at 4.287% late on

Tuesday afternoon, down 3.5 basis points from Monday, while

30-year yields fell 3 basis points to 4.829%. The two-year

yield, which typically moves in step with interest rate

expectations, was down 2.1 basis points at 3.808%, the lowest

since May 8.

The U.S. Treasury will sell five-year and seven-year debt on

Wednesday and Thursday.