(Updated at 1500 EDT)

By Karen Brettell

May 15 (Reuters) - U.S. Treasury yields fell to more

than five-week lows on Wednesday after data showed U.S. consumer

price inflation cooled in April, boosting expectations that the

Federal Reserve will cut interest rates two times this year.

Headline consumer prices gained less than anticipated while

closely watched core prices were in line with economists'

projections.

It comes after higher-than-expected consumer price inflation

in the first quarter raised concerns that the U.S. central bank

will not be able to cut interest rates as many times as

previously expected this year.

"The market is breathing a sigh of relief that we're not

seeing perpetual upside surprises in inflation," said Gennadiy

Goldberg, head of U.S. rates strategy at TD Securities in New

York.

Fed funds futures traders are now pricing in 52 basis points

of cuts this year, up from 45 basis points on Tuesday, with the

first 25 basis point cut likely in September.

"This print keeps the door open to a cut I think as soon as

September," Goldberg said. However, "in the absence of further

catalysts the market could struggle to continue this bullish

momentum in rates."

The market is closely watching economic releases as Fed

policy remains largely data dependant.

The U.S. central bank will likely need to see several months

of data showing inflation easing before it begins cutting rates.

"The Fed needs to see further softening and consistent

softening in these inflation data if it's going to cut rates

this year," said Stephen Gallagher, chief economist at Societe

Generale in New York.

Minneapolis Fed President Neel Kashkari on Wednesday

reiterated his view that he is unsure how restrictive monetary

policy is right now, and that borrowing costs should stay where

they are as U.S. central bankers take stock of inflation.

The consumer price index rose 0.3% last month after

advancing 0.4% in March and February, for an annual gain of

3.4%. Economists polled by Reuters had forecast the CPI gaining

0.4% on the month and advancing 3.4% year-on-year.

The closely watched core CPI rose 0.3% in April, as

expected, after advancing 0.4% in March. In the 12 months

through April, the core CPI increased 3.6%. That was the

smallest year-on-year gain since April 2021 and followed a 3.8%

increase in March.

Other data on Wednesday also showed that U.S. retail sales

were unexpectedly flat in April as higher gasoline prices pulled

spending away from other goods.

Benchmark 10-year yields were last down 9 basis

points at 4.356% and got as low as 4.340%, the lowest since

April 5.

Two-year yields fell 8 basis points to 4.736% and

reached 4.711%, also the lowest since April 5.

The inversion in the yield curve between two-year and

10-year notes was little changed on the day at

minus 38 basis points.