(Updated at 0940 EDT)

By Karen Brettell

NEW YORK, Aug 6 (Reuters) - U.S. Treasury yields rose on

Tuesday as fears that the U.S. economy is quickly entering a

recession were seen as overdone, while safe haven demand for

U.S. bonds also ebbed as stock markets recovered.

Yields tumbled to a more than one-year low on Monday as

investors repriced for rapid interest rate cuts by the Federal

Reserve following an unexpected increase in the unemployment

rate and fewer than expected job gains in July's employment

report on Friday.

San Francisco Fed President Mary Daly said on Monday that

many details in the jobs report leave "a little more room for

confidence that we're slowing but not falling off a cliff."

Chicago Fed President Austan Goolsbee also cautioned against

taking too much of a signal from the global market sell-off,

noting it stemmed in part from the Bank of Japan's decision last

week to raise rates, as well as increasing geopolitical tensions

in the Middle East.

"We had two shocks really in the last week," said Guy

LeBas, chief fixed income strategist at Janney Montgomery Scott

in Philadelphia.

"The first being a downside economic shock evident from

Friday's nonfarm payrolls report and hints of deceleration in

the labor market. The second shock being a positioning shock

related to divergent central bank policy between the Bank of

Japan and the world's other major central banks," LeBas said.

"You put those two things together and you get a recipe for

some choppy action," LeBas added. But, "the idea of pricing in a

very high probability of an intermediate rate cut at a time when

the economy is still growing and there's no obvious crisis is

pretty goofy."

U.S. services sector activity on Monday also boosted

confidence in the economy as it rebounded from a four-year low

in July amid a bounce back in new orders and the first increase

in employment in six months.

Traders are now pricing in a 75% chance the Fed will cut

rates by 50 basis points at its next scheduled policy meeting in

September, and a 25% chance of a 25 basis point reduction. A 50

basis point cut was fully priced in on Monday, with a 75 basis

point cut also seen possible, according to the CME Group's

FedWatch Tool.

Traders had begun positioning for a possible emergency rate

cut before September.

Yields on interest rate sensitive two-year notes

were last up 5.3 basis points at 3.938%, after getting as low as

3.654% on Monday, the lowest since April 2023.

Benchmark 10-year note yields rose 3.9 basis

points to 3.822%, after reaching 3.667% on Monday, the lowest

since June 2023.

The gap between two- and 10-year Treasury notes

was last at minus 12 basis points, after reaching

1.50 basis points on Monday. It was the first time it has turned

positive since July 2022.

Japanese leaders rushed on Tuesday to assuage concerns about

the sharp swings in the country's financial markets, with the

prime minister urging calm and senior finance officials

convening an emergency meeting to discuss the global stock

market sell-off.

A sharp rally in the Japanese yen has prompted traders to

unwind popular trades that involved selling the Japanese

currency and buying U.S. assets.

Yields may be pulled higher by new Treasury supply this

week. The Treasury Department will sell $125 billion in

coupon-bearing debt, including $58 billion in three-year notes

on Tuesday, $42 billion in 10-year notes on Wednesday and $25

billion in 30-year bonds on Thursday.

Safe haven demand could return, however, with rising

geopolitical tension in the Middle East posing a risk to

markets.

Lebanon's armed group Hezbollah launched a series of drone

and rocket attacks into northern Israel on Tuesday but warned

that its much-anticipated retaliation for Israel's killing of a

top commander last week was yet to come.