NEW YORK, Aug 26 (Reuters) - Longer-dated U.S. Treasury

yields edged lower on Monday, after economic data signaled a

cooling in business spending, but moves were limited as

investors digested a steep drop on Friday.

The Commerce Department said non-defense capital goods

orders excluding aircraft, a closely watched proxy for business

spending plans, dipped 0.1% last month after a downwardly

revised 0.5% increase in June and slightly below the unchanged

estimate.

Yields dropped to close out last week's trading after

Federal Reserve Chair Jerome Powell signaled an imminent start

for a rate cut from the central bank, noting that a further

cooling in the labor market would be unwelcome while signaling

confidence inflation is within reach of its 2% target.

Powell's comments signify a shift in the Fed's focus to

supporting the job market over combating inflation.

"The market was stronger this morning until the economic

data came out and really what you had is somewhat of a dovish

Powell speech that to some extent just kind of reconfirmed what

the market had been trading towards anyway right over the prior

couple weeks, or since the last labor market report," said Jim

Barnes, director of fixed income at Bryn Mawr Trust in Berwyn,

Pennsylvania.

"I would be surprised if you get any big swings at this

point one way or the other until you get some of the August

data, labor market and your inflation data. Yields have run down

pretty good to get to where they are down and so a breather at

this point makes sense."

The yield on the benchmark U.S. 10-year Treasury note

fell 1.9 basis points to 3.788%. The 10-year yield

in on track for its fourth straight monthly fall, down more than

30 basis points for August, its biggest drop since December.

Markets are completely pricing in a rate cut of at least 25

basis points at the Fed's September meeting, pricing in a 32.5%

chance for a 50 basis point cut, according to CME's FedWatch

Tool.

The yield on the 30-year bond fell 1.6 basis

points to 4.086%.

Richmond Federal Reserve President Thomas Barkin said in

comments to the Bloomberg "Odd Lots" podcast that the

"low-hiring, low-firing" approach that U.S. businesses currently

take to their employment decisions is unlikely to last, citing

the risk that firms could resort to layoffs if the economy

weakens.

A closely watched part of the U.S. Treasury yield curve

measuring the gap between yields on two- and 10-year Treasury

notes, seen as an indicator of economic

expectations, was at a negative 11.2 basis points.

The two-year U.S. Treasury yield, which typically

moves in step with interest rate expectations,

fell 1.7 basis points to 3.896%.

The breakeven rate on five-year U.S. Treasury

Inflation-Protected Securities (TIPS) was last at

2.039% after closing at 2.02% on August 23.

The 10-year TIPS breakeven rate was last at

2.135%, indicating the market sees inflation averaging about

2.1% a year for the next decade.