Updates to mid-afternoon trading

By Tatiana Bautzer and Chuck Mikolajczak

NEW YORK, Dec 4 (Reuters) - U.S. Treasury yields fell on Wednesday, reversing course after softer economic data offset Federal Reserve officials' comments, and markets continued to price in a 25-basis point interest rate cut in the U.S. central bank's December meeting.

Yields initially rose after St. Louis Federal Reserve President Alberto Musalem said inflation could take up to two years to get to the central bank's target and that the pace of future actions has grown less clear.

However, the ADP National Employment Report showed private payrolls rose by 146,000 jobs last month, compared with the 150,000 estimate of economists polled by Reuters. The U.S. services sector activity slowed in November after posting big gains in recent months, according to the Institute for Supply Management survey on Wednesday.

Fed Chair Jerome Powell also said earlier on Wednesday that the economy is stronger than it had appeared in September , making policymakers potentially more cautious about lowering rates further. His remarks were likely his last before a quiet period for Fed officials prior to the Dec. 17-18 meeting beginning on Saturday.

Fed Governor Christopher Waller said on Monday he was "leaning toward" a cut, but others did not commit to the outcome.

"Markets are still expecting a 25-basis points rate cut in December, but the CPI and nonfarm payrolls will have their say," said Vail Hartman, analyst at BMO Capital Markets in New York.

The benchmark U.S. 10-year Treasury note yield US10YT=TWEB fell 3.7 basis points to 4.184%. The two-year yield US2YT=TWEB, which typically moves in step with interest rate expectations, fell 3.9 basis points to 4.132%.

The U.S. Treasury yield curve between two and 10-year notes US2US10=TWEB, an indicator of economic expectations, steepened to 4.8 basis points.

Yields extended declines after far-right and left-wing lawmakers joined forces to back a no-confidence motion against French Prime Minister Michel Barnier and his government, pushing the European Union's second-biggest economic power deeper into a political crisis.

Nonfarm payrolls in November will be unveiled on Friday. The consumer price index data will be released next Wednesday. The odds of a 25-basis points rate cut were at 75.7%, according to CME's FedWatch tool.

Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania, said yields have been volatile over the last week sessions, as investors followed comments from Fed officials.

"That said, I thought the ADP data came in somewhat benign; the most important jobs data will come on Friday."

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities $(TIPS)$ US5YTIP=TWEB was last at 2.379% after closing at 2.395% on Tuesday.

The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.287%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Tatiana Bautzer and Chuck Mikolajczak; editing by Jonathan Oatis and Richard Chang)

((tatiana.bautzer@tr.com; Mob: +1-646-2397968; Reuters Messaging: tatiana.bautzer.thomsonreuters.com@reuters.net/))