(Recasts, updates yields, adds analyst comments) By Karen Pierog CHICAGO, Nov 2 (Reuters) - U.S. Treasury yields fell and the curve steepened on Tuesday as the market awaited a likely Federal Reserve announcement that it will start tapering its asset purchases, while hoping for clues on seemingly persistent inflation and future interest rate hikes. The benchmark 10-year yield was last down 2.6 basis points at 1.547%. The two-year yield, which hit a 19-month peak last week, had its biggest move downward since February, falling as low as 0.444%. It was last down 5.9 basis points at 0.4559%. "Given that strong price action that we saw last week, the market decided to consolidate a bit into the Fed meeting tomorrow," said Kevin Flanagan, head of fixed income strategy at WisdomTree Investments. At the conclusion of its two-day meeting on Wednesday, the U.S. central bank is widely expected to reveal plans to reduce its monthly $120 billion purchases of Treasuries and mortgage-backed securities. Flanagan said tapering is "pretty much a foregone conclusion," as the market"s focus has turned to the timing and magnitude of future Fed rate hikes and the central bank"s latest view on "transitory" inflation. "What is transitory? Transitory, we were all thought to believe, was a couple of months. It"s now turning into a year." But, Fed Chair Jerome Powell "will kind of play it cool" when it comes to raising rates, according to Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco. "Powell is going to again say that the inflation pop is still transitory and I don"t think he"ll give any kind of hint with respect to the timing of liftoff," she said. Rupert added that the Treasury market had gotten "overly aggressive" in pricing in a couple of Fed rate hikes in 2022. Also on Wednesday, the U.S. Treasury will release the sizes of upcoming coupon auctions after Monday"s announcement that it plans to borrow $1.015 trillion in the fourth quarter, up from its August estimate of $703 billion due to having a lower balance at the beginning of the quarter. The longest end of the curve inverted for a fourth straight session, with the 20-year yield last at 1.9712% and the 30-year yield at 1.9583%. "There"s a lot of illiquidity problems in the 20-year," Rupert said. The five-year yield, a part of the curve that is sensitive to Fed rate expectations, was last 4.8 basis points lower at 1.1476%. After flattening last week, yield curves have steepened so far this week. A closely watched part of the curve that measures the gap between yields on two- and 10-year Treasury notes was last 3.50 basis points steeper at 109.10 basis points. The spread between five-year notes and 30-year bonds also steepened, rising 3.20 basis points at 81 basis points. Inflation expectations remained below last week"s spike to the highest levels in more than a decade. The five-year breakeven inflation rate was last at 2.84%. The 10-year breakeven rate was 2.518%. November 2 Tuesday 3:12PM New York / 1912 GMT Price Current Net Yield % Change (bps) Three-month bills 0.05 0.0507 0.000 Six-month bills 0.0725 0.0735 0.002 Two-year note 99-215/256 0.4559 -0.059 Three-year note 99-186/256 0.7189 -0.064 Five-year note 99-228/256 1.1476 -0.048 Seven-year note 99-184/256 1.4174 -0.043 10-year note 97-80/256 1.547 -0.026 20-year bond 96-100/256 1.9712 -0.031 30-year bond 100-240/256 1.9583 -0.010 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 20.00 0.25 spread U.S. 3-year dollar swap 21.25 0.50 spread U.S. 5-year dollar swap 8.50 1.75 spread U.S. 10-year dollar swap 2.75 1.75 spread U.S. 30-year dollar swap -20.75 1.00 spread (Reporting by Karen Pierog; Editing by Andrea Ricci and Mark Heinrich)