NEW YORK, Aug 16 (Reuters) - Easier U.S. Treasury yields

on Friday partly unwound the previous session's surges as

investors digested data showing a resilient U.S. consumer and

inflation trending lower, leaving the Federal Reserve ample

scope for a small rate cut next month.

Near panic sparked by a jump in the unemployment rate two

weeks ago that the economy was heading for a recession rather

than a soft landing briefly sent bond yields tumbling to levels

not seen in more than a year as investors moved into the safety

of Treasuries and jettisoned stocks.

But healthy retail sales data and a smaller than expected

rise in weekly unemployment claims on Thursday, on the heels of

benign producer and consumer price index readings earlier in the

week, restored confidence in the economic picture, launching

two-year and 10-year yields into their biggest rises in weeks.

Interest rate futures traders scaled back bet's that the Fed

would need to cut 50 basis points when it next meets in

September.

Based on the fed funds futures term structure, they

now see an 80% chance of a 25 bp ease in the policy rate, which

has been in a 5.25%-5.5% target range since the Fed stopped

hiking rates in July 2023.

Since there is no FOMC in August the market seeks a strong

signal from chair Jerome Powell next Friday when he speaks at

the Fed's annual Jackson Hole symposium.

"Today is just a little bit of a pullback of yesterday's

oversized move. We kind of showed that you're seeing cracks in

unemployment but the underlying trend hasn't really collapsed,"

said Jan Nevruzi, U.S. rates strategist at TD Securities in New

York.

"I think it will be harder for Powell to make the case that

we need an outsized cut at next week's Jackson Hole speech," he

said.

Weak July housing starts and building permits data kept

pressure on yields, then yields rose slightly after the release

of a stronger-than-expected preliminary August University of

Michigan consumer sentiment survey reading of 67.8, up from

July's 66.4.

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

off 2.8 bp at 3.898%, paring Thursday's gain that was the

biggest in a week.

The 2-year note yield, which typically moves in

step with interest rate expectations, reached its highest since

Aug. 2 on Thursday and was last down 2.6 bp at 4.0749%. It's

15.9 bp rise the previous session was the biggest since April

10.

The 30-year bond yield fell 2.3 basis points to

to 4.1565%.

The closely watched gap between yields on two- and 10-year

Treasury notes, considered a gauge of growth

expectations, was at negative 17.7 bp, barely steeper from late

Thursday.

An inverted yield curve is generally seen as pointing to a

recession. During the market freak out early last week, hopes of

an aggressive September easing shifted the gap between 2- and

10-year yields to a positive 1.5 bps, the first time the curve

had a more normal upward slope since July 2022.

(Editing by Nick Zieminski)