*

Yields rise amid mixed economic data, tariff concerns

*

ADP report shows lower-than-expected job growth

*

ISM nonmanufacturing PMI beats forecast, indicating

expansion

By Chuck Mikolajczak

NEW YORK, March 5 (Reuters) - U.S. Treasury yields were

mostly higher on Wednesday in choppy trading, as investors

gauged a mixed bag of economic data while assessing the

uncertainty surrounding U.S. President Donald Trump's tariffs on

major trading partners.

Yields initially dipped after the ADP National Employment Report

showed private payrolls increased by only 77,000 jobs last

month, well short of the 140,000 estimate of economists polled

by Reuters, after an upwardly revised 186,000 gain in January.

The data was the latest in a string of economic reports that

has raised concerns about a slowing economy and has nudged up

market expectations for the timing and magnitude of interest

rate cuts from the Federal Reserve this year.

But yields reversed course after the Institute for Supply

Management (ISM) said its nonmanufacturing purchasing managers

index (PMI) climbed to 53.5 last month, above the forecast of

52.6 in a Reuters poll, from 52.8 in January. A reading above 50

signifies expansion.

Along with concerns about a slowing economy, uncertainty has

swirled around Trump's tariffs announcements and their effect on

prices, as well as the impact on the labor market from actions

by the Department of Government Efficiency (DOGE) under Elon

Musk to downsize the federal government.

Commerce Department Secretary Howard Lutnick, speaking in an

interview on Bloomberg TV, said the administration will make an

announcement later on Wednesday regarding the U.S. tariffs that

were imposed on Canada and Mexico on Tuesday as President Donald

Trump weighs potential relief for some sectors such as

automobiles.

"What you're seeing right now is Trump ran on a lot of

things, a lot of the issues, but the three that affect the

markets the most, at least in my opinion, are regulations,

taxes, and tariffs," said Scott Welch, chief investment officer

at Certuity in Potomac, Maryland.

"Too early to tell, but (tariffs) have the potential of

being inflationary and of slowing economic growth ... and so,

what you've seen over the last week or so is just a sort of a

flight to quality, a de-risking, if you will, in the face of

increased market uncertainty."

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

rose 4.9 basis points to 4.259%.

The ADP data was the first in a string of labor market data

this week, which will culminate with the release on Friday of

the government's payrolls report for February.

The yield on the 30-year bond rose 5 basis

points to 4.566%.

FED RATE CUTS

Market expectations that the Fed may have latitude for more

rate cuts this year than recently thought due to a slowing

economy have been growing. Traders now are pricing in 73 basis

points of cuts by the U.S. central bank this year, after earlier

views saw the Fed reducing rates by less than 50 basis points,

according to LSEG data.

Expectations for a Fed cut at its meeting in early May

briefly climbed above 50% on Tuesday and last stood at 43.2%, up

from about 28% a week ago, according to CME Group's FedWatch

Tool.

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 positive 30.9 basis points after rising

to 31.1, its highest since February 4.

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

typically moves in step with interest rate expectations, fell

0.8 basis points to 3.947%.

New York Fed President John Williams said on Tuesday he expects

the Trump administration tariffs to drive up inflation to some

degree, but believes that the central bank's interest rate

policy for now is in the right place and does not need to be

changed.

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

Inflation-Protected Securities (TIPS) was last at

2.574% after closing at 2.6% on Tuesday.

The 10-year TIPS breakeven rate was last at

2.349%, indicating the market sees inflation averaging about

2.3% a year for the next decade.