* Yields steady, investors take profits from flattening trades
* Payrolls report next Friday next main focus
* Fed to buy $1 bln - $1.25 bln bonds due 2036 - 2044
NEW YORK, March 28 (Reuters) - U.S. Treasuries were steady on Friday after a hectic week that saw intermediate-dated note yields rally back from two-month highs, though many analysts and traders see the debt as likely to continue to underperform longer-term bonds. Two-year, three-year, five-year and seven-year notes have underperformed since Federal Reserve Chair Janet Yellen said last week that the central bank could raise interest rates six months after its current bond-buying program ends, suggesting a potential rate hike as early as spring 2015. Those notes gave back some of that weakness this week as some traders took profits from flattening trades, which benefit from intermediate-dated notes underperforming 10-year notes and 30-year bonds. Investors closing out these trades likely helped the Treasury sell $96 billion in new short- and intermediate-dated debt this week. "If the Fed is going to hike it's going to be the belly of the curve that takes the brunt of the pain as we get closer to actual hikes," said Ira Jersey, an interest rate strategist at Credit Suisse in New York. Many investors are still positioned for further weakness in the notes and the yield curve is seen likely to resume its recent flattening trend. Traders said unwinding from some traders that still have steepening trades on have contributed to recent flattening. "The market seems to be leaning shortthe yield curve has flattened a lot, but it's still relatively steep," Jersey said. Five-year note yields were last 1.72 percent, down from a two-month high of 1.77 percent on Monday, but still above the 1.54 percent level that the notes had traded at before Yellen's comments. Thirty-year bonds yielded 3.52 percent, after falling to 3.49 percent on Thursday, the lowest since July. The spread between five-year note yields and 30-year bond yields traded at 180 basis points on Friday, after getting as tight as 179 basis points on Thursday, the flattest since 2009. Bonds showed little reaction to data that showed that U.S. consumer spending rose in February. A number of economic releases next week, culminating in Friday's highly anticipated employment report for March, is the next focus for investors. Employers are expected to have added 195,000 jobs in the month, according to the median estimate of economists polled by Reuters. Chicago Federal Reserve Bank President Charles Evans said on Friday that the Fed will need to keep rates at rock bottom until late 2015 and then increase them only moderately over the next year because it would otherwise risk derailing a building economic recovery. The Fed will purchase between $1 billion and $1.25 billion in bonds due from 2036 to 2044 on Friday as part of its ongoing purchase program.
(Editing by Chizu Nomiyama)