(Updates yields, adds analyst comments) By Karen Pierog CHICAGO, Nov 4 (Reuters) - U.S. Treasury yields fell and the yield curve steepened on Thursday as the market unwound from expectations of quicker Federal Reserve interest rate hikes a day after the central bank signaled it was in no hurry to do so. A decision by the Bank of England to hold off on raising rates, which pushed some government bond yields down sharply in Europe, also helped fuel a rally in Treasuries, according to Andrew Richman, senior fixed income strategist at Sterling Capital Management. "It"s a big reset today," he said. The benchmark 10-year yield, which rose as high as 1.609% earlier in the session, later fell to its lowest level since mid-October at 1.509%, marking its biggest downward move since July 19. It was last down 5.8 basis points at 1.5209%. The two-year yield, which hit a 19-month peak of 0.5640% last week amid heightened expectations of a Fed interest rate hike in 2022, tumbled as low as 0.391%. It was last 6.5 basis points lower at 0.4125%. The U.S. central bank announced on Wednesday it will start cutting its monthly $120 billion purchases of Treasuries and mortgage-backed securities by $15 billion a month, while affirming its belief that current high inflation "is expected to be transitory." Fed Chair Jerome Powell indicated that more job growth was needed before the central bank should raise interest rates. Yield curves steepened to their highest levels in about a week on Thursday. "(The steepening is) telling us that the market is unwinding these expectations for a lot of rate hikes sooner rather than later, so I think (the market is) starting to realize, at least from what Powell has said, the Fed is pretty serious about being patient and allowing inflation to run a bit high," said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research in New York. A closely watched part of the yield curve that measures the gap between yields on two- and 10-year Treasury notes reached 114 basis points, but later flattened to around 110.40 basis points. The spread between five-year notes and 30-year bonds climbed to as high as 88.20 basis points. The gap between 10-year notes and 30-year bonds was last 2.20 basis points steeper at 43.70 basis points. Inflation expectations were elevated, with the five-year breakeven inflation rate rising as high as 2.95%. It was last at 2.89% The five-year yield, a part of the curve that is sensitive to Fed rate expectations, was last 8.4 basis points lower at 1.1008%. The longest end of the curve was inverted for a sixth-straight session, although not consistently. The 20-year yield was last at 1.9644% and the 30-year yield at 1.9596%. Ahead of Friday"s October employment report, the U.S. Labor Department reported on Thursday that initial jobless claims fell to a 19-month low last week. According to a Reuters poll of economists, nonfarm payrolls likely rose by 450,000 jobs last month after only 194,000 jobs were created in September, the fewest in nine months. "If we get a number that"s higher than expected tomorrow, I think that could certainly put a little bit of weakness into Treasuries," Richman said. "If the number comes in weaker, it"s just as likely rates still rally from here." November 4 Thursday 3:05PM New York / 1905 GMT Price Current Net Yield % Change (bps) Three-month bills 0.0425 0.0431 -0.008 Six-month bills 0.065 0.0659 -0.005 Two-year note 99-237/256 0.4125 -0.065 Three-year note 99-216/256 0.6787 -0.078 Five-year note 100-30/256 1.1008 -0.084 Seven-year note 100 1.375 -0.071 10-year note 97-140/256 1.5209 -0.058 20-year bond 96-128/256 1.9644 -0.030 30-year bond 100-232/256 1.9596 -0.026 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 21.00 0.50 spread U.S. 3-year dollar swap 21.75 0.50 spread U.S. 5-year dollar swap 9.75 1.75 spread U.S. 10-year dollar swap 3.25 0.75 spread U.S. 30-year dollar swap -21.75 -1.25 spread (Reporting by Karen Pierog; Editing by Will Dunham and Dan Grebler)