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TREASURIES-U.S. yields fall as CPI disappoints before Fed rate decision

* CPI core rate moderates in November, falls short of forecasts

* Investors await Fed's clue on inflation, rate hikes in 2018

* Traders mull implication on tax cut plan after Alabama election

(Updates market action, adds quote) NEW YORK, Dec 13 (Reuters) - U.S. Treasury yields fell on Wednesday as a report on consumer prices in November fell short of analysts' forecasts, reducing bets on a broad pickup in inflation ahead of the Federal Reserve's interest rate decision. The U.S. central bank is widely expected to lift its target range on short-term rates for a third time in 2017 to 1.25-1.50 percent at 2 p.m. (1900 GMT). However, it was not likely to accelerate its pace of rate increases without a strong case that inflation is picking up steam toward a desired 2-percent mark. "We don't see a great acceleration in inflation. There is no need for the Fed to hike faster," said Gennadiy Goldberg, interest rate strategist at TD Securities in New York. Earlier Wednesday data showed the consumer price index, the government's broadest inflation gauge, grew 0.4 percent last month, matching economists' forecasts. However the CPI core rate, which excludes volatile energy and food prices, moderated to 0.1 percent from a 0.2 percent increase in October and below market expectations. Traders also weighed the implication on the federal deficit and borrowing following Democrat Doug Jones' victory in the special U.S. Senate election in Alabama on Tuesday. The upset narrowed Republicans' Senate majority to just 51-49, raising speculation as to whether the current tax cut plans backed by Republican lawmakers and President Donald Trump could be passed before year-end. "Essentially, its impact on tax reform is still unknown," NatWest Markets strategists wrote in a research note. At 10:04 a.m. (1504 GMT), the benchmark 10-year Treasury yield was 2.385 percent, down 2 basis points from late on Tuesday after touching a near two-week high at 2.426 percent earlier Wednesday. The two-year yield touched nine-plus year peak at 1.852 percent before retreating to 1.823 percent, down 1 basis point on the day, while the five-year yield pulled back from a 6-1/2 year high to 2.158 percent, 1 basis point lower than late Tuesday. In the wake of the latest CPI figures, investors await to see what the Fed will say about inflation in its policy statement and whether Janet Yellen, in her last press conference as Fed chief, would provide more clarity the pace of rate increases in 2018, analysts said. Stubbornly low inflation has kept the Fed on a gradual path in increasing borrowing costs and reducing its balance sheet.

Interest rates futures implied traders are pricing in two quarter-point rate hikes next year, one fewer than what Fed officials had expected at the September policy meeting. December 13 Wednesday 10:05AM New York / 1505 GMT Price

US T BONDS MAR8 153-7/32 0-18/32 10YR TNotes MAR8 124-64/256 0-32/256 Price Current Net Yield % Change

(bps)

Three-month bills 1.305 1.3275 -0.016 Six-month bills 1.4575 1.4887 0.000 Two-year note 99-220/256 1.8231 -0.008 Three-year note 99-206/256 1.9423 -0.011 Five-year note 99-66/256 2.1585 -0.013 Seven-year note 98-224/256 2.3007 -0.014 10-year note 98-208/256 2.385 -0.018 30-year bond 99-224/256 2.7561 -0.025 YIELD CURVE Last (bps) Net

Change (bps)

10-year vs 2-year yield 56.00 -1.00 30-year vs 5-year yield 59.70 -0.60

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 19.50 0.25

spread

U.S. 3-year dollar swap 16.50 0.00

spread

U.S. 5-year dollar swap 5.75 0.00

spread

U.S. 10-year dollar swap 0.50 0.25

spread

U.S. 30-year dollar swap -19.25 0.50

spread

(Reporting by Richard Leong Editing by Chizu Nomiyama)