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* U.S. industrial production jumps
* Consumer sentiment highest since 2004
* Fed expected to raise rates next week
NEW YORK, March 16 (Reuters) - Yields rose on Friday after data showed U.S. industrial production surged in February and in anticipation of next week's Federal Open Market Committee meeting, at which the U.S. central bank is expected to raise interest rates for the first time this year.
Industrial production jumped 1.1 percent last month, the largest increase in four months. The University of Michigan Consumer Sentiment Index also rose in March to the highest level since 2004.
Industrial production was strong, consumer sentiment was also strong and at a 14-year high and theres a lot of nervousness about next weeks FOMC meeting, said Mary Ann Hurley, vice president in fixed income trading at D.A. Davidson in Seattle.
A separate report, however, showed a larger-than-expected plunge in homebuilding last month.
The two-day FOMC meeting will be Federal Reserve Chair Jerome Powell's first in the position, and his forward-looking statement will be the focus of the event.
Powell is widely expected to continue with predecessor Janet Yellen's plan for monetary normalization. Futures traders are pricing in a 94.4 percent likelihood of a rate increase next week, according to the CME Group's FedWatch tool.
The Fed is expected to raise rates three times this year, but a significant jump in inflation in January increased chances of a fourth hike. February's Consumer Price Index report on Tuesday, however, showed growth cooling to 0.2 percent, down from 0.5 percent in January.
Benchmark 10-year Treasury notes fell 7/32 in price to yield 2.848 percent, up from 2.824 percent on Thursday.
Hedging of corporate debt sales expected next week added to the bond weakness, said Hurley.
The yield curve between two-year and 10-year notes steepened to 55 basis points, from 54 basis points on Thursday. The curve has flattened from 82 basis points on Feb. 12.
Some analysts expect the curve to continue its flattening trend as the Fed tightens further and absent changes to the long-term growth outlook.
"We think that in the near term the higher growth as a result of fiscal stimulus will result in a Fed a little bit more comfortable in their tightening path. And we dont necessarily feel like we should see any material adjustments to the longer-term growth outlook," said Mark Cabana, short-term interest rates strategist at Bank of America Merrill Lynch in New York.
"We think that will result in higher front-end rates and not necessarily flow through all the way up the curve." (Reporting by Kate Duguid and Karen Brettell; editing by Jonathan Oatis and Dan Grebler) )