*

Investors look for signs of trade progress between US,

China

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Empire State index rises more than expected

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Beige Book shows labor market softening

(Updates to US afternoon trading)

By Chuck Mikolajczak

NEW YORK, Oct 15 (Reuters) - U.S. Treasury yields rose

in a choppy session on Wednesday, as investors gauged the latest

comments from U.S. officials on the trade situation with China

while the U.S. government shutdown showed little signs of ending

soon.

Yields had moved lower earlier in the session after U.S.

Trade Representative Jamieson Greer described China's major

expansion of its rare earths export controls as a complete

repudiation of U.S.-Chinese trade agreements over the past six

months.

In addition, Treasury Secretary Scott Bessent said it is not

clear whether China's recent restrictions on exports of rare

earth minerals represent a split politically inside its trade

negotiating team, but that he doesn't believe Beijing wants to

be an "agent of chaos."

"It's on the trade stuff ... it seems to be keying off of

them for some reason. Nothing seems to be getting done, and if

anything, I think it's China becoming sort of a lone wolf here,"

said Tom di Galoma, managing director at Mischler Financial

Group in Stamford, Connecticut.

However, yields reversed course after reaching levels

not seen in several weeks.

"Yields couldn't hold below some key levels, 3.50% on

the two-year and 4% on the 10s, so just backing away from that,

thinking that maybe the market's gone a little too far, too

fast," said Kim Rupert, managing director, global fixed income

at Action Economics in San Francisco.

"Risk appetite is still almost booming, but I think the

bonds just ran out of steam."

The yield on the benchmark U.S. 10-year Treasury note

rose 2.2 basis points to 4.044% after hitting

3.999% on the session. That follows the one-month low of 3.998%

reached on Tuesday.

The yield on the 30-year bond rose 1.8 basis

points to 4.642%.

Investors were also still grappling with a lack of U.S.

economic data as the government shutdown drags on to its 15th

day. Bessent said the shutdown is costing the economy about $15

billion a day in lost output.

However, the Federal Reserve Bank of New York said its

Empire State manufacturing index rose to 10.7 in October, up

from negative 8.7 in September and negative 1.4 estimate of

economists polled by Reuters.

In addition, the Fed's Beige Book indicated economic

activity was little changed and employment was largely stable in

recent weeks even as more businesses reported headcount

reductions, supporting concerns about a weakening of the labor

market.

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 53.8 basis points.

On Tuesday, Fed Chair Jerome Powell said that policymakers

will take a "meeting-by-meeting" approach to any further

interest rate cuts and that the central bank may be nearing the

end of its quantitative tightening effort to reduce the size of

its holdings, keeping market expectations for the path of

monetary policy largely intact.

Also on Tuesday, Federal Reserve Bank of Boston President

Susan Collins said that rising job market risks argue for

another rate cut.

Markets are almost completely pricing in a 25 basis point

cut from the Fed at its October meeting, with expectations

currently at 97.8%, according to CME's FedWatch Tool.

The two-year U.S. Treasury yield, which

typically moves in step with interest rate expectations for the

Fed, advanced 2.5 basis points to 3.504% after touching a low of

3.466%, matching the five-week low hit on Tuesday.

Fed Governor Stephen Miran said on Wednesday that two more

cuts from the central bank this year "sounds realistic."

The breakeven rate on five-year U.S. Treasury

Inflation-Protected Securities (TIPS) was last at

2.351%, its lowest since July 2.

The 10-year TIPS breakeven rate was last at

2.297%, indicating the market sees inflation averaging about

2.3% a year for the next decade.