* U.S. payrolls gain 175,000 within market forecast * Mortgage-related selling adds to Treasuries losses By Richard Leong NEW YORK, June 7 U.S. Treasury debt prices fell on Friday in volatile trading as data that showed steady domestic job growth in May revived bets the Federal Reserve might pare its bond purchases later this year, spurring selling in bonds. The latest U.S. payrolls gain of 175,000, while below the top-end of economist forecasts above 200,000, was enough to feed speculation that Fed policymakers will scale back their $85 billion monthly purchases of Treasuries and mortgage-backed securities later this year. The selling in government bonds was compounded by investors closing their Treasuries hedges on their MBS holdings. A reduction in the central bank's third round of quantitative easing, dubbed QE3, will likely increase mortgage rates and slow refinancing, reducing the appeal of mortgage bonds, analysts said. The May jobs report "increases the risk they might consider tapering QE later this year and this has caused bonds to sell off a bit," said Craig Dismuke, chief economic strategist at Vining Sparks in Memphis, Tennessee. On the open market since the release of the payrolls report, benchmark 10-year Treasury notes last traded 8/32 lower in price with a yield of 2.107 percent, up 2.8 basis points from late on Thursday. The 30-year bond was down 23/32 in price, yielding 3.280 percent, up 4.1 basis points from Thursday's close. The long bond was as down more than 1 point in price earlier in reaction to the payrolls data.