TREASURIES-Yields flat as jobs report doesn't change investor expectations

(Updates to afternoon U.S. trading) Dec 8 (Reuters) - U.S. Treasury yields were little changed on Friday after seesawing following the release of a U.S. jobs report that showed the economy added 228,000 jobs last month but average hourly earnings failed to meet expectations. Average hourly earnings have become a standout statistic in the government's nonfarm payrolls report as they are seen as a harbinger of inflation, the element missing from the broader growth story in the U.S. economy. "The headline number looked pretty strong, in that the payrolls beat expectations," said Collin Martin, director for fixed income at the Schwab Center for Financial Research. "So on the surface it looked pretty good but whats a bit concerning was average hourly earnings and it looks like thats what the market is really focusing on this morning." While employment numbers have continued to rise, workers' average hourly pay has not increased in line with previous economic recoveries or expansions, mystifying Federal Reserve policymakers and economists. "Whats influencing the bond investors is that any news today or even lately, the last few months ... have not altered the view that inflation is pretty stuck around that 2 percent range," said Craig Callahan, president of ICON Advisors in Denver. The Fed is still almost universally expected to raise interest rates at its December policy meeting next week, but the continued absence of growing inflation in data has clouded expectations for the Fed's path in 2018 and beyond. ICON's Callahan said that even if the Fed were to move forward with its projected path of rate hikes next year, long-term inflation expectations would remain subdued because of the global availability of resources and continuing downward pressure on prices. Fed funds futures show investors see a 90 percent chance the U.S. central bank raises overnight interest rates to 1.25-1.50 percent at its Dec. 12-13 meeting and a 10 percent chance it raises them to 1.50-1.75 percent, according to CME Group's Fed Watch tool. The metric shows a zero percent chance the Fed holds at the current rate of 1.00-1.25 percent.

Benchmark 10-year notes were down 1/32 in price

to yield 2.38 percent. Yields initially edged down after the jobs report headline hit screens, but retraced that move shortly thereafter as traders unpacked the report.

The 2-year note was little changed in price,

yielding 1.80 percent.

(Reporting by Dion Rabouin; editing by Chizu Nomiyama, Phil Berlowitz and Susan Thomas)