* U.S. Q1 GDP comes out weaker than expected
* U.S. core PCE, an inflation gauge, is at 2 percent
* U.S. labor costs rise in Q1
* June rate hike chances rise after GDP data (Adds comment, byline, table; updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, April 28 (Reuters) - U.S. Treasury debt yields rose across the board on Friday after data showed the U.S. economy in the first quarter grew at its slowest pace in three years, but details of the report suggested a more upbeat outlook.
Yields, which move inversely to prices, touched session highs immediately after the report. Some analysts suggested that investors were probably positioned for a much weaker number in line with the Atlanta Federal Reserve's forecast for growth of just 0.2 percent.
Data showed on Friday that U.S. gross domestic product grew at a 0.7 percent annual rate, the weakest performance since the first quarter of 2014.
But there were positive elements. For instance, the core inflation measure, the PCE index, was 2 percent, compared with 1.3 percent in the fourth quarter. The headline PCE deflator also rose, up 2.4 percent. All these figures suggested a build-up in inflation, which should keep the Fed on track to raise rates at least twice this year.
Indeed, rate futures have priced in a 71 percent probability of a Fed policy tightening in June after the GDP data, up from about 68 percent before the report's release.
Elsewhere, first-quarter employment costs rose to 0.8 percent, higher than market expectations, an indication of rising wage growth.
"Everything continues to point to continued acceleration in wage growth," said Brett Ewing, chief market strategist, at First Franklin Financial Services in Tallahasee, Florida.
"The weak (GDP) number is more likely a pause than a continued slowdown.. Odds should rise to a near certainty for June. They simply cannot hold off into such strong labor numbers," he added.
In late morning trading, benchmark 10-year notes were down 3/32 in price to yield 2.307 percent, up from 2.296 percent late on Thursday. Yields earlier hit session highs of 2.338 percent.
U.S. 30-year bond prices fell 10/32, yielding 2.980 percent, up from Thursday's 2.965 percent.
On the front end of the curve, U.S. two-year yields were at 1.269 percent, up from Thursday's 1.258 percent.
Jim O'Sullivan, chief U.S. economist, at High Frequency Economics believes GDP in the second quarter should be much higher, going by the fact that growth has tended to be below-trend in the first quarters of the last seven years.
He said real U.S. growth has averaged just 1.0 percent annual rate in first quarters, well below the 2.5 percent for the second quarter, 2.5 percent for the third, and 2.3 percent for the fourth. (Editing by Bernadette Baum)