* Oil price increase and Middle East tensions drive

yields higher

* April CPI shows inflation remains elevated with higher

energy and AI spending

* Strong jobs data dims hopes for near-term Fed rate cuts

By Karen Brettell

NEW YORK, May 12 (Reuters) - U.S. Treasury yields rose

on Thursday as oil prices increased on concerns about continued

energy supply disruptions in the Middle East, while data showed

that U.S. consumer prices rose at a brisk clip for a second

straight month in April.

Hopes for a peace deal on Iran faded after Donald Trump said a

ceasefire with Iran was "on life support" as Tehran rejected a

U.S. proposal to end the conflict and stuck to a list of demands

the U.S. president described as "garbage."

April's consumer price data pointed to upward pressure from

rising gasoline costs, though the inflationary impact of tariffs

appears to be easing.

"On the goods side, we do seem to see tariff effects fading

out of the inflation data," said Matt Bush, U.S. economist at

Guggenheim Investments in New York.

"At the same time, though, we obviously have this new shock

from rising energy costs," he added. "And then a third shock

hitting the data is spillovers from all the AI spending."

Overall, the data supports the Federal Reserve keeping

interest rates on hold as it continues to assess the risks of

higher inflation, Bush said.

The 2-year note yield, which typically moves in step

with Fed interest rate expectations, rose 4.6 basis points to

3.994%.

The yield on benchmark U.S. 10-year notes rose

3.9 basis points to 4.451%.

The yield curve between two- and 10-year notes

was last at 45 basis points.

Stronger-than-expected jobs data has all but eliminated the

prospect of near-term rate cuts. Friday's jobs report showed

that employers added 115,000 jobs last month, above economists'

projections for a 62,000 gain.

The Treasury will sell $42 billion in 10-year notes on

Tuesday, the second sale of $125 billion in coupon-bearing

supply this week.

A $58 billion auction of three-year notes on Monday saw soft

interest. The government will also sell $25 billion in 30-year

bonds on Wednesday.