TREASURIES-U.S. yields fall as tariffs trump Powell's less rosy view

* Trump's steel, aluminum tariffs stoke fears over retaliation

* 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

(Updates market action, adds quote) NEW YORK, March 1 (Reuters) - U.S. Treasury yields fell on Thursday with the 10-year hitting near three-week lows as President Donald Trump's plan for stiff tariffs on steel and aluminum stoked fears of retaliation from U.S. trading partners and rising costs for consumers. The 25-percent tariffs on imported steel and 10-percent levies on aluminum in a bid to protect U.S. producers overshadowed testimony from Federal Reserve Chairman Jerome Powell, who told U.S. lawmakers that, while the economy was doing well, there was scant evidence it was overheating or propelling wages decisively stronger. "It's causing people a lot of angst," Carl Kaufman, portfolio manager at Osterweis Capital Management in San Francisco, said of the tariffs but he downplayed the risk the move will spiral into a trade war. Trump's tariff announcement came after Powell's testimony to the Senate Banking Committee where he said "there is no evidence the economy is overheating." Powell's 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. Bets had grown that the Fed may raise short-term rates four times in 2018, one more than policy makers projected in December. "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. The benchmark 10-year U.S. Treasury note yield was at 2.811 percent, down about 6 basis points from late on Wednesday. It fell to a two-week low of 2.795 percent earlier on Thursday, Reuters data showed. The two-year yield fell to 2.218 percent, the lowest in almost two weeks after hitting a more than nine-year high of 2.286 percent on Wednesday. The spread between five-year and 30-year yields was 51.0 basis points, wider than the 48.2 basis points late on Wednesday, Tradeweb data showed. 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 filings for unemployment benefits fell to a 48-year low last week, while the Institute for Supply Management said its barometer of national factory activity reached its strongest since May 2004.

March 1 Thursday 3:17PM New York / 2017 GMT Price

US T BONDS MAR8 145-8/32 26/32 10YR TNotes MAR8 121-32/256 15/32 Price Current Net Yield % Change

(bps)

Three-month bills 1.6 1.6287 -0.030 Six-month bills 1.7975 1.8391 -0.016 Two-year note 100-18/256 2.2137 -0.048 Three-year note 99-174/256 2.3626 -0.055 Five-year note 100-50/256 2.583 -0.067 Seven-year note 100-18/256 2.7389 -0.063 10-year note 99-120/256 2.8114 -0.057 30-year bond 98-56/256 3.0916 -0.036 YIELD CURVE Last (bps) Net

Change (bps)

10-year vs 2-year yield 59.60 -1.20 30-year vs 5-year yield 50.80 2.55

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 25.75 -2.25

spread

U.S. 3-year dollar swap 21.75 -2.50

spread

U.S. 5-year dollar swap 10.00 -0.75

spread

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

spread

U.S. 30-year dollar swap -19.75 -1.50

spread

(Reporting by Richard Leong Editing by Rosalba O'Brien and James Dalgleish)