(Recasts; adds PMI news; updates yields)
NEW YORK, Jan 31 (Reuters) - The 30-year Treasury yield fell below 3 percent on Thursday after manufacturing data disappointed and a measure of wage inflation came in weaker than expected, reinforcing the Federal Reserve's suggestion it may need to pause before lifting borrowing costs further.
The yield's decline to below the 3 percent level was its first since Jan. 10, touching a daily low of 2.98 percent. The 10-year yield also fell and was last at 2.63 percent.
Longer-dated bonds reflect traders' views on the overall health of the economy, which appeared to have worsened after weaker-than-expected economic data on Thursday morning.
The Employment Cost Index, the broadest measure of labor costs, rose 0.7 percent in the fourth quarter after an unrevised 0.8 percent rise in the third quarter, the Labor Department said. Higher costs came as employers boosted benefits for workers, but the increase was nevertheless lower than expected.
The data continues a pattern of stubbornly low inflation in the current credit cycle.
"One of the big tenets of the Fed discussion was that if inflation stays muted... the case for hiking rates is weaker," said Brian Daingerfield, macro strategist at NatWest Markets.
The Fed held interest rates steady on Wednesday and said the central bank would be patient in raising rates further this year, pointing to rising uncertainty about the U.S. economy's outlook. The central bank described the labor market as "having continued to strengthen."
"In light of global economic and financial developments and muted inflation pressures, the committee will be patient" in determining future rate hikes, the Fed's rate-setting committee said in its policy statement.
Yields were also driven lower by a big miss in the Chicago Purchasing Managers Index, a measure of regional manufacturing activity. It fell to its lowest in two years in the largest point drop in the index since February 2015.
A jump in weekly jobless claims also hit Treasury yields, stoking concerns about a deterioration in labor conditions and overall economic growth.
Friday's non-farm payrolls report is expected to reflect an uptick in the unemployment rate due to the five-week federal shutdown that ended on Jan. 25.
"As we look ahead to the average hourly earnings print tomorrow as part of the NFP, the market sees that slightly weaker-than-expected wage inflation as well as the big jump in jobless claims as reinforcing the Fed's ability to be patient that they laid out in pretty clear terms at yesterday's FOMC," said Daingerfield. (Reporting by Kate Duguid; Editing by Dan Grebler)