(Updates market activity, Fed comments, ISM data) By Ross Kerber Aug 4 (Reuters) - U.S. Treasury yields bounced higher on Wednesday after a top U.S. Federal Reserve official backed expectations for higher interest rates, shifting traders" focus away from a disappointing payroll report. The benchmark 10-year yield was up 3.3 basis points at 1.207% in late-morning trading. It previously touched 1.127%, its lowest since February. 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, was at 102 basis points, about 2 basis points lower than Tuesday"s close. Yields rose as Fed Vice Chair Richard Clarida spoke at an online economic event. Clarida said he could envision a taper in bond purchases later this year, and that the U.S. economy is on track to meet hurdles the central bank has set for raising interest rates. Clarida also said he was surprised by how much global government bond yields have fallen, but said he does not think the decline was driven by lower inflation expectations. Data from the Institute for Supply Management also beat forecasts. The reports set a new tone for the day, which began with yields depressed after the Treasury Department said it is considering reductions in issuance. Separately, U.S. private payrolls increased far less than expected in July. The yield on 10-year Treasury Inflation Protected Securities was -1.144% after setting a record low of -1.216% before Clarida spoke. The 10-year TIPS break-even inflation rate was at 2.36%, slightly lower than on Tuesday. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up a basis point at 0.1841%. August 4 Wednesday 11:07AM New York / 1507 GMT Price Current Net Yield % Change (bps) Three-month bills 0.05 0.0507 0.000 Six-month bills 0.0525 0.0532 0.002 Two-year note 99-226/256 0.1841 0.010 Three-year note 100-24/256 0.3429 0.024 Five-year note 99-182/256 0.6841 0.033 Seven-year note 100-32/256 0.9814 0.034 10-year note 103-216/256 1.207 0.033 20-year bond 107-232/256 1.7742 0.017 30-year bond 111-116/256 1.8715 0.021 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.75 0.50 spread U.S. 3-year dollar swap 11.75 0.50 spread U.S. 5-year dollar swap 8.50 0.00 spread U.S. 10-year dollar swap 2.00 0.00 spread U.S. 30-year dollar swap -26.50 -0.25 spread (Reporting by Ross Kerber in Boston; Editing by Jonathan Oatis and Dan Grebler) Our Standards: The Thomson Reuters Trust Principles.