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TREASURIES-Benchmark U.S. yield hits 8-week low as weak data resets Fed view

(Updates prices, adds comment)

NEW YORK, July 22 (Reuters) - U.S. 10-year Treasury yields touched their lowest level in eight weeks on Friday, after weak data added to worries about the global economic growth outlook and traders reassessed the Federal Reserve's ability to raise rates much further.

Data on Friday showed the global economy teetering into a slowdown at a time when central banks are focusing on battling inflation by limiting access to cash.

Business activity in the United States contracted this month for the first time in nearly two years, S&P Global's U.S. Composite PMI Output Index showed. Euro zone activity contracted for the first time in over a year, and growth in Britain was at a 17-month low.

Separately Japan's government is expected to sharply cut its forecast for domestic growth, while China's strict COVID-19 lockdowns and Russia's invasion of Ukraine have further damaged global supply chains.

"There was a pretty sharp correction after the PMIs," said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York.

"The market is quickly pricing out the possibility of the Fed being able to raise rates aggressively for the remainder of the year."

A 75 basis-point hike from the Fed is all but priced in according to traders, with the probability of a larger move dwindling down into the single digits.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 11.7 basis points at 2.978%.

The yield on 10-year Treasury notes was down 11.9 basis points to 2.789%. The yield on the 30-year Treasury bond was down 7.9 basis points to 2.993%.

The two- and 10-year Treasury notes yield spread , seen as an indicator of economic expectations, was at -19.1 basis points.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.593%, after closing at 2.591% on Thursday.

The U.S. dollar 5 years forward inflation-linked swap , seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed's quantitative easing, was last at 2.358%. (Reporting by Rodrigo Campos; Editing by Nick Zieminski)

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