(Updated at 15:00 EDT)

By Karen Brettell

April 25 (Reuters) - U.S. Treasury yields hit more than

five-month highs after data on Thursday showed that a measure of

inflation rose more than expected in the first quarter, even as

growth was weaker than thought.

Gross domestic product increased at a 1.6% annualized rate

last quarter, below economists' expectations for a 2.4% gain.

Core PCE rose by 3.7%, above expectations for a 3.4% increase.

"The market is likely zeroing in on the hot inflation number

in the report which was definitely a surprise," said Kevin

Gordon, senior investment strategist at Schwab in New York.

Traders are focused on economic data for new clues on

when the Federal Reserve will begin cutting interest rates.

Those expectations were pushed back after consumer price

inflation data for March released earlier this month was above

economists' expectations.

The data comes before Friday's highly anticipated

personal consumption expenditures (PCE) report for March.

The PCE data is "something that the Federal Reserve monitors

very closely," said Tom di Galoma, managing director and co-head

of global rates trading at BTIG.

Fed funds futures traders are pricing in 35 basis points of

easing this year, down from 43 basis points late on Wednesday,

with the first cut seen likely in September or November.

Benchmark 10-year Treasury note yields were last

up 5 basis points on the day at 4.704% and earlier reached

4.739%, the highest since Nov. 2. Two-year yields

gained 6 basis points to 4.996%, and got as high as 5.027%, the

highest since Nov. 14.

The inversion in the yield curve between two- and 10-year

notes was little changed on the day at minus 29

basis points.

The Treasury saw OK demand for a $44 billion auction of

seven-year notes, the final sale of $183 billion in short- and

intermediate-dated debt this week.

The notes sold at a

high yield

of 4.716%, close to where they traded before the auction.

Demand was 2.48 times the amount on offer, the lowest since

November.

The government saw solid demand for a $69 billion sale

of two-year notes on Tuesday, and a record $70 billion auction

of five-year notes on Wednesday.