(Updates as of 1030 EDT; Changes dateline)

By Alden Bentley

NEW YORK/LONDON, Oct 7 (Reuters) - The benchmark

Treasury yield topped 4% for the first time in two months on

Monday, and a widely watched section of the yield curve briefly

inverted as markets bet against another jumbo U.S. rate cut

after Friday's strong U.S. jobs report.

The 10-year yield rose 4.3 basis points from

late Friday to 4.024%, and hit its highest level since July 31

at 4.0290% in early trade. It rose 13 bps on Friday, its biggest

one-day rise since June 30, after news the U.S. economy added

254,000 jobs in September, above the expectations of economists

polled by Reuters. The unemployment rate surprisingly fell to

4.1% from 4.2%.

The two-year yield, which is more sensitive to

changes in monetary policy expectations, reached its highest

since Aug. 19 at 4.0270% and was up 6.9 basis points at 4.0014%.

It rose almost 22 bps on Friday, its biggest daily rise since

April.

"The market very quickly flipped from talking about a 50

basis point cut to possibly no cut in November, just based on

the strength of the data," said Gennadiy Goldberg, chief U.S.

rates strategist at TD Securities in New York.

"It would be very strange for them to give up the ghost on

additional cuts this soon after a 50-bp rate cut," he said.

Based on the fed funds futures term structure,

traders see a roughly 85% chance of a 25 bps ease in the policy

rate at next month's Federal Reserve meeting. That was lower

than a more than 90% certainty priced in on Friday, largely

because traders started betting that the Fed could leave rates

unchanged, which had 15% probability on Monday, according to

LSEG calculations.

The Fed last month lowered the fed funds target rate to

4.75%-5.0% from 5.25%-5.5%, where it had been since the Fed

stopped hiking rates in July 2023.

"Friday's U.S. labor report put paid to U.S. recession fears

and most remaining hopes that the Fed could follow up

September's rate cut with another 50 bps move next month," said

Jane Foley, senior FX strategist at Rabobank.

The closely watched spread between two- and 10-year U.S.

Treasury yields briefly turned negative for the

first time since Sept. 18, the day the Fed eased 50 bps. It was

last at a positive 2.1 basis points, compared to Friday's late

+4.1 bp.

Goldberg said the selloff in Treasuries that brought key

yields just above 4% could incentivize investors to add

duration, once the market stabilized. The auction of 3-year,

10-year and 30-year Treasury debt this week could see decent

interest now that yields have backed up, he said.

The 30-year bond yield rose 2.8 basis points to

4.2964% from 4.268% late on Friday.

The main U.S. economic release of the week comes Thursday

with the release of September's Consumer Price Index. Inflation

worries have given way to the strength of the labor market as a

driver of Fed policy thinking.