* Weak dollar lifts oil, metals; commodity stocks rise
* UK inflation jumps most in two years, sterling firm
* U.S. inflation due, dollar down as investors mull Fed outlook
By Nigel Stephenson
LONDON, Oct 18 (Reuters) - Rising commodity prices pulled shares higher on Tuesday and the dollar slipped from a seven-month high as bond yields fell, while sterling briefly strengthened after data showed UK inflation rose by its most in more than two years last month.
U.S. inflation data due later will also be a focus after Federal Reserve Chair Janet Yellen suggested last week the central bank could allow inflation to top its 2 percent target.
The weaker dollar helped lift oil and metals prices, lifting commodity related stocks in Europe and Asia.
The pan-European STOXX 600 share index rose 1.2 percent, led higher by a 2.6 percent rise in the basic resources sub-index and a 1.4 percent gain in oil and gas firms .
Britain’s internationally-focused FTSE 100 index, in which miners are heavily represented, rose 1.1 percent.
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MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.8 percent, led by financials and energy shares. Australia’s benchmark index was up 0.4 percent while Japanese stocks edged higher on a softer yen.
Sterling hit a six-day high of $1.2272 before retreating, after data showing annual consumer price inflation in Britain accelerated to 1.0 percent last month from 0.6 percent in August. Sterling last stood at $1.2237, still up 0.5 percent on the day.
The numbers confirmed that a weak pound since June’s vote to leave the European Union is already pushing up some prices. British 10-year government bond yields flat at 1.13 percent, having risen in recent days with investors winding back expectations of further Bank of England rate cuts.
Data due later is expected to show the U.S. core consumer price index held steady at 2.3 percent last month, according to economists polled by Reuters, above the Fed’s 2 percent target.
The dollar eased by 0.2 percent against a basket of currencies, pulling back further from a seven-month high hit on Monday, as investors digested recent comments from Yellen and other Fed officials.
On Monday Vice Chairman Stanley Fischer said economic stability could be threatened by low rates but it was “not that simple” for the Fed to hike.
HSBC currency strategist Dominic Bunning said: “It’s very hard for the dollar to maintain a bull run at the moment, because a stronger dollar acts as a tightening force on the U.S. economy ... so that makes it harder for the Fed to raise rates in December.”
The euro was up 0.2 percent at $1.1019 and the yen was down 0.1 percent at 104.03 per dollar.
The Australian dollar gained 0.8 percent to $0.7683 after central bank chief Philip Lowe said he was comfortable with the exchange rate and China’s yuan weakened marginally to about 6.74 per dollar, the latest in a series of six-year lows.
A decline in oil inventories as the northern hemisphere winter approaches also helped push crude prices higher.
Brent, the international benchmark, rose 40 cents to $51.92 a barrel.
The weaker dollar also helped lift copper 0.4 percent to $4,694 per tonne. Gold prices also rose, gaining 0.5 percent to $1,261 an ounce. (Additional reporting by Saikat Chatterjee in Hong Kong, Jemima Kelly in London; Editing by Robin Pomeroy)