* Futures show traders more sure on U.S. rate increase in June
* But traders seen on the fence about another hike after June
* “Disastrous” U.S. May jobs report may delay Fed to move next month (Updates throughout, adds quote)
By Richard Leong
NEW YORK, May 26 (Reuters) - U.S. interest rates futures finished little changed on Friday, as a upgrade of U.S. gross domestic product in the first quarter reinforced the view that the Federal Reserve would raise key short-term rates at its next policy meeting in June.
The U.S. government on Friday offered its first reassessment of first-quarter GDP growth, raising it to 1.2 percent from the initial reported 0.7 percent last month.
The revised reading, while far from stellar, was stronger than analysts’ expectations of a 0.9 percent increase.
Next week’s nonfarm payrolls for May will be watched closely by investors to determine whether a June rate increase is a done deal.
“It would have to take a real disastrous jobs report to derail the Fed from raising rates next month,” said Bryce Doty, senior portfolio manager at Sit Fixed Income Advisors LLC in Minneapolis.
On Wednesday, the U.S. central bank released minutes of its May 2-3 meeting where policymakers agreed to refrain from raising rates until they saw evidence that the GDP slowdown in the first quarter was temporary. Nearly all of them agreed that the Fed should begin reducing its bond reinvestments later this year in an effort to shrink its $4.5 trillion balance sheet.
On June 2, the Labor Department will release its payrolls report for May at 8:30 a.m. EDT (1230 GMT).
In addition to the revised GDP report, data on durable goods orders in April released on Friday came in a tad stronger than what analysts had expected, while the University of Michigan said its U.S. consumer sentiment index retreated in late May from their stronger level earlier this month.
Federal funds futures implied traders saw about an 88 percent chance the Federal Reserve would raise interest rates by a quarter point to 1.00-1.25 percent at its June 13-14 meeting , compared with an 83 percent probability late on Thursday, according to CME Group’s FedWatch program.
Fed funds contracts suggested traders priced in just under a 50 percent chance the U.S. central bank would raise once more by year-end following a possible June move , little changed from late Thursday. (Reporting by Richard Leong; Editing by Chizu Nomiyama and Jonathan Oatis)