(Adds quotes, Powell comments; Updates prices)
* U.S. adds fewer jobs than expected in March
* Trade tensions between China and U.S. increase
* Fed Chair Powell affirms gradual rate hike outlook
By Karen Brettell
NEW YORK, April 6 (Reuters) - U.S. Treasury prices gained on Friday as trade tensions mounted between the United States and China and after employers added fewer jobs than expected in March.
China warned on Friday it was fully prepared to respond with a "fierce counter strike" of fresh trade measures if the United States follows through on President Donald Trump's threat to slap tariffs on an additional $100 billion in Chinese goods.
Tariffs could increase inflation on goods shortages, making it more likely the Federal Reserve will continue raising interest rates, though they also risk hurting economic growth.
“The issues with it are essentially that it forces the Fed into a posture where they have to be more aggressive just to fight inflation and at the same time it depresses long-term global economic output,” said Aaron Kohli, an interest rate strategist at BMO Capital Markets in New York.
Benchmark 10-year notes gained 13/32 in price to yield 2.784 percent, down from 2.832 percent on Thursday.
The U.S. economy created the fewest jobs in six months in March as the boost from mild temperatures faded, but a pickup in wage gains pointed to a tightening labor market.
"The weaker-than-expected headline number for new jobs can be muted by February’s upward revision," said Quincy Krosby, chief market strategist at Prudential Financial. "Wage growth continues to inch higher but not enough to worry markets at this point."
The Fed will likely need to keep raising interest rates to keep inflation under control, Fed Chairman Jerome Powell said in a speech on the economic outlook that did not address the economic risks of rising trade tensions.
"He seems to be affirming a gradual, steady approach to tightening monetary policy," said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York. (Additional reporting by Sinead Carew Editing by Bernadette Baum and Dan Grebler) )