NEW YORK, Sept 12 (Reuters) - U.S. Treasury yields were

roughly unchanged on Thursday after economic data cemented

investor expectations the Federal Reserve will begin a gradual

decrease in interest rates next week.

U.S. producer prices increased slightly more than expected

in August, but the trend remained consistent with subsiding

inflation. On the labor market side, meanwhile, data on Thursday

showed the number of Americans filing new applications for

unemployment benefits increased marginally last week.

The data did not alter investor expectations of a

25-basis-point interest rate cut by the U.S. central bank at its

Sept. 17 to 18 rate-setting meeting. Bets for a bigger,

half-percentage point cut were curbed on Wednesday when consumer

price data showed inflation remains somewhat sticky.

"The initial (jobless) claims were benign as far as any

relationship to movement in bond prices," said Lou Brien, market

strategist at DRW Trading in Chicago.

Traders in rates futures were assigning a 13% chance to a

50-bps cut next week, in line with Wednesday, with the consensus

remaining largely on a 25-bps reduction adjustment, CME Group

data showed.

"The market has been expecting the Fed to move next week and

they're likely to move," said Erik Aarts, senior fixed income

strategist at Touchstone Investments. "Some in the marketplace

thought there could be a larger cut next week; we don't think

so, we're firmly in the camp of getting 25 basis point as the

start of rate cuts," he said.

Bond investors on Thursday were also closely scrutinizing

the European Central Bank, which cut interest rates again as

inflation slows and economic growth falters. The ECB cut its

deposit rate by 25 bps to 3.50%, as expected, following a

similar cut in June.

Later on Thursday, the Treasury will sell $22 billion in

30-year bonds, the last leg of this week's U.S. government bond

supply. A 10-year note auction was well received on Wednesday.

Benchmark 10-year Treasury yields were last at

3.659%, just slightly higher on the day. Two-year yields

, which tend to more closely reflect expectations of

changes in monetary policy, were last at 3.641%, a touch lower

than on Wednesday.

The curve comparing 10- and 2-year yields,

closely watched by investors for its signals on the economic

outlook, steepened to 1.4 basis points from less than one on

Wednesday.

(Reporting by Davide Barbuscia; Editing by Emelia

Sithole-Matarise)