By Chuck Mikolajczak

NEW YORK, May 8 (Reuters) - U.S. Treasury yields were lower on Friday after a stronger-than-expected payrolls report slightly reduced expectations for a rate hike from the Federal Reserve this year, while signs of whether a U.S. ceasefire with Iran would hold were also eyed.

The Labor Department said nonfarm payrolls increased by 115,000 jobs last month, well above the 62,000 estimate of economists polled by Reuters, after an upwardly revised 185,000 gain in March. The unemployment rate held steady at 4.3%, which matched expectations.

"The report made it so that the Fed's mandates are not in tension with each other and we're going to be continuing to focus on the inflation mandate in the near term, as that's the one that's more at risk from being further from target,” said Molly Brooks, U.S. rates strategist at TD Securities in New York.

"That's why we didn't see much of a change in Fed pricing.”

Expectations the Fed will hold rates steady this year through its December meeting inched up to 76.4% from 70.1% in the prior session, according to CME's FedWatch Tool, while views for a hike of at least 25 basis points decreased to 11% from 22.5%.

Since the war in Iran began on February 28, yields have steadily climbed as inflation worries dented market expectations for rate cuts from the Federal Reserve this year.

The yield on the benchmark U.S. 10-year Treasury note US10YT=TWEB fell 3.8 basis points to 4.356% and was down about 2 basis points for the week, on track for its first weekly decline after two straight weeks of gains.

The United States said it expected an Iranian response as soon as later in the day to its latest proposal to end the war, even as U.S. and Iranian forces clashed in the Gulf and the United Arab Emirates came under renewed attack.

The yield on the 30-year bond US30YT=TWEB fell 2.4 basis points to 4.945% and was poised for a weekly decline, its first in three.

U.S. crude CLc1 fell 0.68% to $94.17 a barrel and Brent LCOc1 fell to $99.98 per barrel, down 0.08% on the day as oil prices pared earlier gains.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 47.8 basis points.

TWO-YEAR YIELDS ON PACE FOR WEEKLY DECLINE

The two-year US2YT=TWEB U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, fell 4.1 basis points to 3.878%, putting it on track for a slight weekly decline, which would mark its first after two consecutive weekly gains.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=TWEB was last at 2.617% after closing at 2.625% on Thursday.

The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.46%, indicating the market sees inflation averaging about 2.5% a year for the next decade.