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TREASURIES-U.S. yields dip as Powell dials back optimism on economy

* Fed's Powell assesses U.S. economy not overheating

* Fed's Dudley says four rate hikes in 2018 would be "gradual"

* U.S. core consumer inflation posts biggest rise in a year

* U.S. 10-year yield touches 2-week low, 2-year below 9-year peak

(Updates market action, adds quote) NEW YORK, March 1 (Reuters) - U.S. Treasury yields slipped on Thursday as Federal Reserve Chairman Jerome Powell told U.S. lawmakers that, while the economy was doing well, there was scant evidence it was overheating or propelling wages decisively stronger. The yield curve steepened a touch as Powell's latest comments reduced bets the Fed was ready to ratchet up key borrowing costs faster in the wake of last year's major tax overhaul, along with signs of inflation perking up. "There is no evidence the economy is overheating," Powell said before the Senate Banking Committee. His comments, the second part of his inaugural testimony before Congress as Fed chief, were seen as less upbeat than his remarks on the U.S. economy before the House Financial Services Committee two days earlier. "They seemed more even-keel. He's a little less upbeat, but he's still upbeat," said Gennadiy Goldberg, interest rate strategist at TD Securities in New York. His remarks before the House panel on Tuesday had sparked worries the Fed may quicken its pace of interest rate increases. Bets have grown that the Fed may raise short-term rates four times in 2018, one more than policy makers projected in December. At 1 p.m. (1800 GMT), benchmark 10-year Treasury yield was 2.848 percent, down 2 basis points from late on Wednesday. It fell to a two-week low of 2.824 percent earlier on Thursday, Reuters data showed. The two-year yield fell to 2.250 percent after hitting a more than nine-year high of 2.286 percent on Wednesday. The spread between five-year and 30-year yields was 50.1 basis points, wider than the 48.2 basis points late on Wednesday, Tradeweb data showed. Two days of sharp losses on Wall Street and disappointing housing and regional data had raised speculation that Powell might soften his tone at his Senate appearance, in a bid to quell rate-hike jitters. As Powell was testifying, New York Fed President William Dudley, speaking in Sao Paulo, said four rate increases in 2018 would still constitute a "gradual" tightening. On the data front, the Commerce Department said U.S. consumer prices increased in January, with a gauge of underlying inflation posting its largest gain in 12 months. That bolstered views that price pressures will accelerate this year. The Labor Department said first-time filing for unemployment benefits fell to a 48-year low last week, while the Institute for Supply Management said its barometer on national factory activity reached its strongest level since May 2004.

Thursday, March 1 at 1301 EST (1801 GMT): Price

US T BONDS MAR8 144-25/32 11/32 10YR TNotes MAR8 120-236/256 9/32 Price Current Net Yield Change (pct) (bps) Three-month bills 1.6075 1.6364 -0.023 Six-month bills 1.8 1.8417 -0.013 Two-year note 100-4/256 2.2419 -0.020 Three-year note 99-150/256 2.3956 -0.022 Five-year note 100-14/256 2.6132 -0.037 Seven-year note 99-228/256 2.7673 -0.035 10-year note 99-56/256 2.8405 -0.027 30-year bond 97-192/256 3.116 -0.012 YIELD CURVE Last (bps) Net

Change (bps)

10-year vs 2-year yield 59.70 -1.05 30-year vs 5-year yield 50.10 1.85

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 26.25 -1.75

spread

U.S. 3-year dollar swap 22.00 -2.25

spread

U.S. 5-year dollar swap 10.25 -0.50

spread

U.S. 10-year dollar swap 0.75 -0.50

spread

U.S. 30-year dollar swap -19.25 -1.00

spread

(Reporting by Richard Leong; Editing by David Gregorio and Rosalba O'Brien)