* U.S. producer prices rise more than expected * U.S. yield curve steepens, with 2-year/10 year spread at 149 bps * Looming $120 billion in Treasury supply next week * Investors also look to CPI next week (Repeats to additional subscribers without any changes to text) NEW YORK, April 9 (Reuters) - U.S. Treasury yields rose on Friday after higher-than-expected producer prices data for March that showed inflation perked up, in line with other upbeat reports that suggested the world’s largest economy was on a stable path to recovery from the pandemic. U.S. yields across the board hit session highs after the PPI numbers. By afternoon trading yields had come off their highs, as has been the case all week. “I think the market is willing to give a little benefit of the doubt to the Federal Reserve, which said that the first wave of inflation would be transitory,” said Lou Brien, market strategist at DRW Trading in Chicago. “There seems to be an uneasy tension, but we do seem to have fallen into a level on yields where we’re willing to hang out until we get to a resolution,” Brien added. At an International Monetary Fund event on Thursday, Powell said a surge in spending as the U.S. economy reopens, along with bottlenecks in supply, will likely push prices higher this year, but would not result in the kind of yearly price increases that would constitute inflation. Friday’s data, which showed U.S. producer prices increased more than expected in March, helped propel yields higher in the morning session. U.S. producer prices posted the largest annual gain in 9-1/2 years, fitting in with expectations for higher inflation as the economy reopens. Going into next week, investors looked to Treasury supply of $120 billion in 3-year, 10-year, and 30-year debt that could pressure prices and push yields higher. “Supply remains very much top of mind and following what had been a nearly universally smooth underwriting process throughout the bulk of the pandemic, the volatility in the primary market lately has drawn renewed focus on Treasury auction,” BMO Capital Markets said in a research note. Investors are also looking at U.S. consumer prices data next week, with the monthly index seen at 0.2% and a yearly gain of 1.5%. In afternoon trading, the U.S. 10-year Treasury yield rose to 1.662% from 1.632% on Thursday. U.S. 20-year yields defied Friday’s trend, falling to 2.223%, from 2.224% on Thursday. U.S. 30-year yields were up at 2.337% from Thursday’s 2.322%. U.S. 5-year note yields, which typically reflect interest rate expectations, rose for the first time in five days to 0.875% from Thursday’s 0.84%. On the week, the 5-year yields dropped nearly 5 basis points, the largest fall since mid-December. The yield curve, which has become a barometer of risk sentiment in the bond market, steepened on Friday following the data. The spread between U.S. 2-year and 10-year yields rose to 149.90 basis points. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Toby Chopra and Will Dunham)