(Updates yields, adds upcoming auctions and analyst comments) By Karen Pierog CHICAGO, Sept 2 (Reuters) - U.S. Treasury yields drifted lower on Thursday as the market remained on hold ahead of the government"s closely watched employment report, which potentially could break yields out of their tight range. The benchmark 10-year yield was last down 1 basis point at 1.2919%. "We have to get through the payrolls print tomorrow to have some sort of direction where things are going," said Subadra Rajappa, head of U.S. rates strategy at Societe Generale. She added that if the U.S. Labor Department on Friday reports an increase of 700,000 or so jobs in August, that could make the U.S. Federal Reserve "very comfortable discussing tapering" its $120 billion in monthly purchases of Treasuries and mortgage-backed securities. "But I think an announcement at the September (Federal Open Market Committee) meeting still seems a little premature. November, December is when it makes sense for them to make an official announcement," Rajappa said. Economists surveyed by Reuters forecast nonfarm payrolls increased by 750,000 last month after rising by 943,000 in July, while the unemployment rate is expected to dip to 5.2% from 5.4%. Meanwhile, yields have been stuck in a "super-tight range overall," according to George Goncalves, head of U.S. macro strategy at MUFG in New York. If job gains are meaningfully less than 600,000, "the rally could pick up steam a little bit and try to test 1.20%," he said, adding that gains in line with the consensus could send yields a little bit higher "because people now are defensive." Yields were largely unmoved by Thursday"s release of the latest jobless claims data, which showed initial claims for state unemployment benefits dropped by 14,000 to a seasonally adjusted 340,000 for the week ended Aug. 28. That was the lowest level since mid-March 2020 when nonessential businesses were shut to slow the first wave of coronavirus cases. The U.S. Treasury on Thursday announced it will auction $58 billion of three-year notes, $38 billion of 10-year notes, and $24 billion of 30-year bonds next week. The five-year note yield, which is more sensitive to intermediate interest rate hikes, was last down less than a basis point at 0.774%. A closely watched part of the yield curve that measures the gap between yields on two- and 10-year Treasury notes was last less than a basis point flatter at 107.84 basis points. The U.S. federal funds rate bounced back to 8 basis points on Wednesday after falling to 6 basis points on Tuesday for the first time since June due to month-end demand. September 2 Thursday 3:23PM New York / 1923 GMT Price Current Net Yield % Change (bps) Three-month bills 0.045 0.0456 0.000 Six-month bills 0.05 0.0507 -0.007 Two-year note 99-211/256 0.2135 0.002 Three-year note 99-230/256 0.4097 0.003 Five-year note 99-226/256 0.774 -0.006 Seven-year note 100-88/256 1.0738 -0.007 10-year note 99-156/256 1.2919 -0.010 20-year bond 98-180/256 1.8279 -0.015 30-year bond 102-40/256 1.9052 -0.014 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.75 -0.50 spread U.S. 3-year dollar swap 11.50 -0.50 spread U.S. 5-year dollar swap 8.75 0.00 spread U.S. 10-year dollar swap 1.50 -0.25 spread U.S. 30-year dollar swap -28.00 -0.75 spread (Reporting by Karen Pierog; editing by Jonathan Oatis and Sonya Hepinstall) Our Standards: The Thomson Reuters Trust Principles.