* Ten-year yields retrace after earlier hitting 2.93 percent * Some traders see short squeeze after initial yield spike * Strong jobs data raises bets that Fed will act sooner * Fed buys $5.13 billion notes due 2017, 2018 By Karen Brettell and Luciana Lopez NEW YORK, Dec 6 (Reuters) - U.S. Treasuries yields were steady on Friday after a strong jobs report briefly sent them surging to their highest since September, as investors evaluated when the Federal Reserve is likely to begin paring back its bond-purchase program. U.S. employers added 203,000 jobs in November and the jobless rate fell to a five-year low of 7.0 percent, raising expectations the Federal Reserve will begin reducing its bond purchases in coming months. But Treasuries were volatile and some traders said some investors positioning for yield increases may have been caught by a short squeeze that sent yields tumbling back down to be unchanged, after an initial surge. "I think everyone got a little too far ahead of themselves expecting very strong economic numbers. The market priced in most of a worse-case scenario heading into the number," said Aaron Kohli, an interest rate strategist at BNP Paribas in New York. Benchmark 10-year notes were last down 5/32 in price to yield 2.879 percent, after briefly rising as high as 2.93 percent, the highest since Sept. 13. They have increased from 2.70 percent a week-and-a-half ago. The 30-year bond traded flat to yield 3.913 percent. "The market reacted pretty violently to the report, and I think a lot of people got caught in the hole," said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York. Traders had expected job gains of around 200,000, higher than economists' expectations of around 180,000, based on the median estimate of 90 economists polled by Reuters before the data. The Fed is viewed by some as likely to pare back purchases in its $85 billion-a-month program in January, after a recent run of strong data, and some see it as even possible this month. Still, the Fed could wait for a more sustained run of data - and the confirmation of incoming chair Janet Yellen - before changing its policy stance. "If you string these kind of numbers consistently for the next six months or so I think you will see an exit, but I don't think that's happening until after she's confirmed and after you see these numbers fall in line," said Richard Daskin, the chief investment officer of RSD Advisors in New York. Improving labor market prospects also buoyed consumer confidence in early December. The Thomson Reuters/University of Michigan's preliminary consumer sentiment index jumped to 82.5 from 75.1 in November, a separate report showed on Friday. The Fed will meet on Dec. 17 and 18 in its final meeting of the year. Some traders have said that it may be more hesitant to act in December for fear of disrupting market liquidity heading into year-end. A few weeks ago many traders and analysts had expected that the Fed would be most likely to act at its March meeting. The Fed bought $5.13 billion in notes due 2017 and 2018 on Friday as part of its ongoing purchases. Unemployment near 6 percent could force the Fed's hand in coming months by making purchases politically unfeasible. "It would be much harder for the Fed politically to continue buying if they don't have unemployment at high levels," said BNP's Kohli. The Fed is seen as likely to stress its plans to hold rates near record lows even as it begins to pare bond purchases, in an effort to stem any dramatic yield rise that could otherwise threaten the economic recovery. But the drop in the unemployment rate brought it closer to the 6.5 percent level that Fed officials said would trigger discussions over when to raise interest rates from their current levels near zero. Some economists think the central bank will lower that threshold to convince markets that any rate hike is a long way off.