(Adds details, prices, quotes) By Davide Barbuscia NEW YORK, Jan 26 (Reuters) - U.S. Treasury yields rose on Thursday after economic data showed resilience in the U.S. economy, potentially strengthening the case for the Federal Reserve to maintain its hawkish posture in coming months as it seeks to cool inflation. GDP increased at a 2.9% annualized rate last quarter, the Commerce Department said in its advance fourth-quarter GDP growth estimate on Thursday. The economy grew at a 3.2% pace in the third quarter. Economists polled by Reuters had forecast GDP would rise at a 2.6% rate. A separate report from the Labor Department on Thursday showed the labor market remained strong, with initial claims for state unemployment benefits dropping 6,000 to a seasonally adjusted 186,000 for the week ended Jan. 21, lower than the 192,000 reported for the previous week. Benchmark U.S. Treasury 10-year yields rose more than two basis points after the data, although they pared gains afterwards and were last seen at 3.478%, slightly higher than on Wednesday. Two-year note yields, which tend to more closely reflect monetary policy expectations, were last seen at 4.164%, nearly three basis points higher from Wednesday. Before the data was released, yields were already up on the back of euro zone bond yields, which rose on Thursday after recent hawkish comments from European Central Bank officials. "This morning we started to see some data coming in a bit above expectations, which is a good sign for growth, and that's going to help decrease the downside move in Treasury yields that had been developing in the last couple of weeks," said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management. The U.S. central bank raised its benchmark overnight rate by 4.25 percentage points last year to fight decades-high inflation, but the rapid tightening of monetary policy - the fastest since the 1980s - has led investors to weigh inflation concerns against recessionary fears, with markets gyrating between the two. After a series of supersized rate hikes, the Fed is now largely expected to deliver a smaller 25-basis-point hike next week after indications of a slowdown in inflation. Signs of resilience in the economy could be seen as supporting a so-called "soft landing" scenario, one in which the Fed manages to tame inflation without causing a recession, but investors and analysts still point to the risk of over-tightening due to the delayed effects of monetary policy. "We still expect the lagged impact of the surge in interest rates to push the economy into a mild recession in the first half of this year," Andrew Hunter, senior U.S. economist at Capital Economics, said in a note. Meanwhile, strong labor market data indicated an imminent dovish change of course by the Fed remained unlikely, said Alexandra Wilson-Elizondo, head of multi-asset retail investing at Goldman Sachs Asset Management. "It is difficult to see unemployment rising to the required rate to moderate wage inflation at these levels of growth. We believe above potential growth, in combination with the low level of jobless claims, should challenge the view of a policy pivot in the near term," she said. January 26 Thursday 10:13AM New York / 1513 GMT Price Current Net Yield % Change (bps) Three-month bills 4.5575 4.6741 -0.001 Six-month bills 4.6525 4.8301 0.005 Two-year note 99-237/256 4.1641 0.027 Three-year note 100 3.8746 0.034 Five-year note 99-166/256 3.5774 0.033 Seven-year note 102-14/256 3.5375 0.028 10-year note 105-84/256 3.4781 0.016 20-year bond 103-128/256 3.7477 0.009 30-year bond 106-228/256 3.6199 -0.004 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 28.75 -0.50 spread U.S. 3-year dollar swap 14.00 0.00 spread U.S. 5-year dollar swap 6.50 2.00 spread U.S. 10-year dollar swap -2.75 0.50 spread U.S. 30-year dollar swap -38.50 0.75 spread (Reporting by Davide Barbuscia; Editing by Chizu Nomiyama and Paul Simao)
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