NEW YORK, Oct 11 (Reuters) - U.S. Treasury yields

briefly ticked lower early on Friday after a report showed

producer prices were flat in September, avoiding an inflation

curve ball for the Federal Reserve before it must decide how

much more to ease at its next meeting.

The unchanged reading in the Producer Price Index for final

demand last month followed an unrevised 0.2% gain in August, the

Labor Department said on Friday. Economists polled by Reuters

had forecast the PPI edging up 0.1%. In the 12 months through

September, the PPI increased 1.8% after climbing 1.9% in August.

The data followed news on Thursday that consumer prices rose

slightly more than expected in September, lifted by higher food

costs. The two reports supported views that the Federal Reserve

would cut interest rates again, after September's aggressive

50-basis point reduction.

Yields soon after reversed. The yield on benchmark U.S.

10-year notes was up 2.2 basis points from late

Thursday at 4.116%.

The 30-year bond yield rose 3.4 basis points to

4.4193% and the 2-year note yield, which typically

moves in step with interest rate expectations, was off 1.6 basis

points at 3.983%.

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 13.1 basis points, steeper than

late Thursday's +10.2 bp.

Based on the fed funds futures term structure,

traders see an 82% chance of a 25 bps ease in the policy rate,

which has been in a 4.75%-5.0% target range since the Fed cut

last month, at the central bank's November meeting. The odds for

a quarter-point cut were 85% late Thursday.