(Adds analyst comment, details of JOLTS report, updates yields)

By Gertrude Chavez-Dreyfuss

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

dropped on Wednesday after data showed job openings fell in

July, reflecting a softening labor market that reinforced

expectations of an interest rate cut by the Federal Reserve

later this month.

In late morning trading, U.S. two-year yields, which are

tied to interest rate policy, slid 5.4 basis points (bps) to

3.604%. The benchmark 10-year yield also fell, down

5.8 bps at 4.217%.

The declines came after the Bureau of Labor Statistics'

Job Openings and Labor Turnover Survey or JOLTS showed that job

openings, a measure of labor demand, fell to 7.181 million by

the last day of July. Economists polled by Reuters had forecast

7.38 million unfilled jobs.

Hiring increased 41,000 to 5.308 million in July. Layoffs

rose 12,000 to 1.808 million.

"Once again, there is not very much wrong here. In short,

no sign of recession or even an economic slowdown can be found

in the headlines of this report," wrote Carl Weinberg, chief

U.S. economist, at High Frequency Economics in a research note

after the data.

"Openings are decreasing on trend. So what? The decline is

slight. The levels are still high and above pre-pandemic

levels."

U.S. 30-year bond yields sank 7.1 bps to 4.898%

, after earlier hitting 5% earlier in the session,

the highest in about 1-1/2 months.

The yield curve flattened after the jobs data, with the gap

between two-year and 10-year yields narrowing to 60.9 bps

, compared with 62 bps late on Tuesday. Earlier on

Wednesday, the curve hit 63.8 bps its widest spread since April.

The curve showed a bull flattening scenario as a result of

long term interest rates falling faster than those on the short

end of the curve, which for now reflects a slight decline in

inflation expectations. This often precedes the Fed cutting

interest rates.

U.S. rate futures now widely expect the Fed to lower rates

this month, pricing in a 96% chance of a 25-bp cut at the end of

the two-day policy meeting on September 17, according to CME

Group's FedWatch tool. That was at 92% late on Tuesday.

Traders have also priced in about 59 bps of easing this

year, up from 56 bps on Tuesday.