By Ross Kerber
   July 2 (Reuters) - U.S. Treasury yields were lower on Friday after a strong payroll report left uncertainty about how the U.S. Federal Reserve might respond.
   The benchmark 10-year yield was down 2.4 basis points at 1.4559% in morning trading. That was slightly above its level before new Labor Department data showed U.S. job growth accelerated in June.
   Nonfarm payrolls increased by 850,000 jobs last month after rising 583,000 in May, the Labor Department said in its closely watched employment report on Friday. The unemployment rate rose to 5.9% from 5.8% in May.
   Treasury yields initially spiked up on the strong job gains, then fell back. Market analysts said the trading reflected mixed interpretations about how the Fed might incorporate the new information as it decides how to end crisis-era bond-buying.
   Normally strong numbers would send yields higher, said Priya Misra, global head of rates strategy for TD Securities in New York. Of Friday's trading, she said, "I think the market is torn between whether to price in the market outlook or the Fed reaction."
   The minutes of the Fed's June 16-17 meeting, when officials opened debate on how to end crisis-era bond-buying and signalled interest rate increases were closer on the horizon than previously thought, are due out on Wednesday.
   Friday's trading left little changed a closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes , seen as an indicator of economic expectations. It was at 121 basis points, about a basis point higher than Thursday's close.
   The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 1.4 basis points at 0.2435%.
  
   July 2 Friday 9:31AM New York / 1331 GMT
   Price Current Net
   Yield % Change
   (bps)  Three-month bills 0.0475 0.0482 0.000  Six-month bills 0.0525 0.0532 0.002  Two-year note 99-196/256 0.2435 -0.014  Three-year note 99-104/256 0.4533 -0.018  Five-year note 99-250/256 0.8798 -0.022  Seven-year note 100-54/256 1.2184 -0.027  10-year note 101-140/256 1.4559 -0.024  20-year bond 103-252/256 2.0057 -0.013  30-year bond 106-196/256 2.07 -0.016
  
   DOLLAR SWAP SPREADS
   Last (bps) Net
   Change
   (bps)   U.S. 2-year dollar swap 7.50 -0.50   spread   U.S. 3-year dollar swap 11.50 -0.75   spread   U.S. 5-year dollar swap 7.75 -0.25   spread   U.S. 10-year dollar swap -2.00 0.00   spread   U.S. 30-year dollar swap -31.25 -0.25   spread
       (Reporting by Ross Kerber in Boston Editing by Chizu Nomiyama)  ((ross.kerber@thomsonreuters.com; (617) 856 4341; Reuters Messaging: Ross.Kerber.Reuters.com@Reuters.net)