(Updates market activity)

By David Randall

NEW YORK, July 5 (Reuters) - Benchmark 10-year Treasury

yields slid on Friday following closely-watched jobs data that

appeared to show the U.S. labor market weakening, strengthening

market expectations that the Federal Reserve will begin to cut

interest rates in September.

Nonfarm payrolls grew by 206,000 jobs in June, slightly

higher than the 190,000 jobs estimated by economists polled by

Reuters. Estimated job growth for May, meanwhile, was revised

down to 218,000 positions from 272,000, while April's job growth

was revised down to 108,000 jobs from the previous 165,000.

The unemployment rate rose to 4.1%, slightly higher than the

estimated 4.0%.

The labor market has been a key focus for Fed policymakers

in their debate over when to begin cutting interest rates. The

U.S. central bank has cited the resiliency of the jobs market as

a potential catalyst for a possible resurgence in inflation.

"This was not a terrible report, but with the large

revisions it shows there are cracks and weaknesses under the

surface," said David Wagner, a portfolio manager at Aptus

Capital Advisors. "This keeps the (Fed's) September meeting a

live meeting for a rate cut."

Futures markets are now pricing in a roughly 73% chance for

a 25-basis-point rate cut at the Fed's Sept. 17-18 meeting, up

from a 57.9% chance a week ago, according to CME Group's

FedWatch tool. Overall, markets are pricing in a cumulative 50

basis points in interest rate cuts by the end of the year.

"The downward revisions to the previous two months is

consistent with an economic slowdown," said Jeffrey Roach, chief

economist for LPL Financial. "We should expect more rhetoric out

of the Fed about labor market conditions and the importance of

keeping policy appropriate for their dual mandate."

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

fell 7.1 basis points to 4.276%, leaving it down

approximately 20 basis points for the week and near its lowest

levels since late June.

The yield on the 30-year bond fell 4.8 basis

points to 4.472%.

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

moves in step with interest rate expectations, fell 8.9 basis

points to 4.604%, leaving it at its lowest level since late

March.

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 negative 33.0 basis points.