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GLOBAL MARKETS-Stocks climb, dollar falls after inflation data

(Updates with afternoon prices, adds commentary)

* Wall Street rallies with Nasdaq leading gains

* CPI was flat in July after rising 1.3% in June

* In 12 months through July, CPI rose 8.5% vs 9.1% in June

By Sinéad Carew

NEW YORK, Aug 10 (Reuters) - Wall Street equities rallied and the dollar tumbled after signs of sharply decelerating U.S. inflation prompted bets that the Federal Reserve would raise interest rates at a slower pace than previously expected.

While Treasury yields since regained some ground, they had tumbled after data showed consumer prices did not rise in July as the cost of gasoline fell, delivering the first notable sign of relief for Americans who have watched inflation soar over the past two years.

Traders priced in a 50 basis points rate hike next month, compared with the 75 bps increase that had been expected before inflation report.

"This morning's inflation report was a stress reliever and now we're getting buying in stocks, bonds and commodities. We haven't had an inflation release that was lower than expected in quite some time," said John Augustine, chief investment officer at Huntington National Bank in Columbus, Ohio.

But Augustine said that there were still a lot of uncertainty around what the Fed will do and the economic growth and earnings outlook for 2023. "We're staying neutral here until we get a better view of next year," he said.

The Dow Jones Industrial Average rose 414.3 points, or 1.26%, to 33,188.71, the S&P 500 gained 72.07 points, or 1.75%, to 4,194.54 and the Nasdaq Composite added 307.50 points, or 2.46%, to 12,801.43.

The pan-European STOXX 600 index rose 0.89% and MSCI's gauge of stocks across the globe gained 1.54%.

In Treasuries, benchmark 10-year notes rose 1/32 in price to yield 2.7937%, compared with 2.797% late on Tuesday. The 30-year bond fell 26/32 in price to yield 3.0465%, from 3.005%. The 2-year note rose 4/32 in price to yield 3.2203%, from 3.286%.

Following the data, Chicago Fed President Charles Evans's said inflation was still "unacceptably" high, and that the Fed would need to continue to raise rates.

Minneapolis Federal Reserve Bank President Neel Kashkari said that while the reading was "welcome" the Fed was "far, far away from declaring victory" and needed to raise rates much higher.

The dollar index fell 1.063%, with the euro up 0.87% to $1.03.

The Japanese yen strengthened 1.68% versus the greenback at 132.93 per dollar, while sterling traded at $1.2223, up 1.18% on the day.

Oil prices rebounded from losses early in the session after encouraging figures on U.S. gasoline demand and as the inflation figure drove investors into riskier assets.

U.S. crude settled up 1.58% at $91.93 per barrel and Brent finished at $97.40, up 1.13% for the day.

Spot gold dropped 0.3% to $1,789.12 an ounce. It had charged higher and broke above the $1,800 level right after the inflation data before leveling off.

(Reporting by Sinéad Carew, Karen Brettell, Lawrence White and Sam Byford; Additional reporting by Sujata Rao; Editing by Kirsten Donovan and John Stonestreet)

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