Stocks steady, dollar dips as investors brace for U.S. inflation data

* Europe's STOXX and U.S. futures edge up slightly

* Markets await U.S. CPI report at 1230 GMT

* Economists expect 8.7% U.S. inflation -Reuters poll

By Lawrence White

LONDON, Aug 10 (Reuters) - Stocks and bonds steadied on Wednesday, while the dollar edged lower ahead of U.S. inflation data that could give clues to the Federal Reserve's appetite for more aggressive rate rises.

The Consumer Price Index (CPI) report will be released at 1230 GMT, with markets watching for signs that inflation eased in July despite unexpectedly strong U.S. jobs numbers last week.

The market is pricing in a 69.5% chance of a 75 basis point rate increase at the Fed's next meeting FEDWATCH .

Economists polled by Reuters expect the CPI to show year-on-year headline inflation USCPNY=ECI of 8.7%, far above the Fed's target of 2% but down from last month's red-hot 9.1%.

Europe's benchmark STOXX index .STOXX edged up 0.08%, after a 1% fall in the MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS as Chinese inflation data pointed to prices rising 2.7% in July, below expectations.

"I don’t think that we are through the bear market woods yet – recession risks loom and I don’t think the Fed is done with its aggressive belt tightening," said David Chao, a global market strategist for Asia Pacific ex-Japan at Invesco.

"I don’t think markets have fully discounted these variables. This week’s inflation data will certainly give us more clarity of the Fed’s near-term policy outlook."

U.S. markets looked set to open broadly flat, with S&P 500 futures ESc1 up 0.18% as investors awaited the key data.

"Today’s inflation data follows a strong US jobs report last week, that slightly eases fears of a near-term recession, but suggests the economy’s still in need of some cooling," said Matt Britzman, equity analyst at Hargreaves Lansdown.


The dollar edged down, showing signs of resuming a retreat that began in the middle of July. The dollar index =USD , which measures the greenback against six major peers, was down 0.24% at 106.1, possibly hinting at weaker CPI expectations.

Euro zone bond yields crept lower as Refinitiv data showed traders pricing in a second consecutive 50 basis-point hike from the European Central Bank at its September meeting.

Money markets in the bloc are now pricing in a 100% chance of a 50 basis-point hike from the ECB next month, up from 95% on Tuesday and around a 50% chance last week, the data showed.

Germany's 10-year government bond yield DE10YT=RR was down 2 basis points at 0.904%. DE10YT=RR .

Analysts noted the U.S. data due Wednesday represent a lagging indicator that might not yet show inflation softening, and yield curves could flatten or invert further.

A flattening yield curve is usually seen as a sign of an economic slowdown and inversions as predictors of recessions. As measured by the gap between two- and 10-year yields, the U.S. curve is deeply inverted at below minus 40 bps. US2US10=TWEB

Oil prices fell after industry data showed U.S. crude inventories unexpectedly rose last week, signalling a possible hiccup in demand. Brent crude futures LCOc1 fell $1.22 to $95.13 a barrel, while U.S. West Texas Intermediate (WTI) crude CLc1 was down $1.25 cents to $89.27.

Gold XAU= also pared gains and was down 0.26% at $1,789.5 an ounce. It briefly broke through the $1,800 barrier overnight for the first time in more than a month.

Bitcoin, which often tracks tech stocks, fell 0.25% to $23,082. BTC=

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Reporting by Lawrence White and Sam Byford; Additional
reporting by Sujata Rao; Editing by Lincoln Feast, Robert Birsel
and Alexander Smith

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