(Adds tax bill, quotes; Updates prices)
* Average hourly earnings dipped in October
* Treasury yield curve flattest since late 2007
* Doubts about tax plan support bonds
NEW YORK, Nov 3 (Reuters) - U.S. Treasury yields were little changed on Friday after the governments jobs report for October showed that wages did not pick up in the month, raising some concerns about continuing low inflation, though recent hurricanes were seen as distorting the data. Nonfarm payrolls increased by 261,000 jobs last month. But the return of workers in such lower-paying industries as leisure and hospitality after the hurricanes held back wage growth. Average hourly earnings slipped by one cent, leaving them unchanged in percentage terms. The markets are focused on the rate side on the miss in the average hourly earnings. Thats a good indication of recent wage pressures and were just not seeing that, said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York. That said, you are starting to adjust for the hurricanes and its really hard to know exactly whats going to happen, Rajappa added.
Benchmark 10-year notes gained 2/32 in price on
the day to yield 2.343 percent, after falling as low as 2.323 immediately after the data. The yield curve between two-year notes and 10-year notes flattened to 71.1 basis points, the narrowest since late 2007. Bonds rallied this week on expectations that President Donald Trump would nominate Federal Reserve Governor Jerome Powell to head the Federal Reserve, as he did on Thursday. Powell, who already sits on the U.S. central bank's board, is seen as someone who will stick with the monetary policy stance favored by current Chair Janet Yellen, whose term expires in early February. It is not clear yet, however, if there are any significant areas of policy where Powells views may differ from Yellens. We dont know for instance how strongly he believes in the Phillips curve, whereas Janet Yellen very clearly does, said Michael Schumacher, head of rate strategy at Wells Fargo in New York. The Phillips Curve suggests that wages should rise as the labor market tightens. I think people are a little bit too complacent saying hes a Yellen clone, we dont know if we can say that comfortably yet, Schumacher said. Bonds have also been supported by doubts that Republican lawmakers will be able to pass a tax bill that was unveiled on Thursday, which Trump has requested be sent to him send to sign into law by the U.S. Thanksgiving holiday on Nov. 23.
"That seems terribly ambitious for a sweeping reform, said Schumacher.
(Editing by Chizu Nomiyama)