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US STOCKS-Wall St gains on data, Mnuchin's remarks on tax reform

* July annual inflation increased at slowest pace since late 2015

* U.S. non-farm payrolls for August expected on Friday

* Dollar General falls after quarterly results

* Campbell Soup lower after 2018 sales warning

* Indexes up: Dow 0.20 pct, S&P 0.48 pct, Nasdaq 0.86 pct (Updates to early afternoon)

By Sruthi Shankar and Tanya Agrawal

Aug 31 (Reuters) - U.S. stocks extended gains in early afternoon trading on Thursday as largely upbeat data pointed to strength in the economy and investors cheered Treasury Secretary Steven Mnuchin’s comments on tax reform.

President Donald Trump’s administration has a detailed plan on tax reform and is still on track to execute the agenda by the end of this year, Mnuchin said.

The remarks come on the back of Trump’s speech on Wednesday, when he reiterated his longstanding call for slashing the U.S. corporate tax rate to 15 percent from 35 percent.

Earlier on Thursday, data showed consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.3 percent last month after a 0.2 percent gain in June.

The upbeat consumer report comes a day after data showed the economy grew at its fastest pace in the second quarter in over two years. In China, factory growth accelerated unexpectedly in August, according to a report.

“The outlook for the U.S. and the global economy, remains relatively positive and most investors do not see a recession ahead,” said Michael Sheldon, chief investment officer of RDM Financial Group at HighTower.

“Given that backdrop, equity markets are likely to grind higher over the next few quarters and pullbacks are likely to be bought by investors.”

However, the core personal consumption expenditures (PCE) price index - the Fed’s preferred inflation measure - increased 1.4 percent in the 12 months through July, its smallest year-on-year increase since December 2015.

“The fact that inflation remains below the Fed’s 2 percent goal makes it tougher for (the Fed) to raise rates in the fourth quarter,” added Sheldon.

Investors are also awaiting the comprehensive monthly jobs report on Friday, which will help investors gauge the strength of the labor market as they look for clues on the Fed’s next move on rates.

At 12:21 p.m. ET (1621 GMT), the Dow Jones Industrial Average was up 43.9 points, or 0.2 percent, at 21,936.33 and the S&P 500 was up 11.86 points, or 0.48 percent, at 2,469.45.

The Nasdaq Composite was up 54.65 points, or 0.86 percent, at 6,422.96.

Ten of the 11 major S&P sectors were higher, with the health index’s 1.13 percent rise leading the advancers.

UnitedHealth’s 1 percent gain provided the biggest boost to the Dow. The Nasdaq biotech index rose 2.18 percent, helped by a rise in Gilead, Celgene and Biogen.

Dollar General fell 4.85 percent after reporting a slide in second-quarter margins.

Campbell Soup slid 6.23 percent, becoming the biggest percentage loser on the S&P, after the company warned that sales for fiscal 2018 could fall.

Advancing issues outnumbered decliners on the NYSE by 2,114 to 696. On the Nasdaq, 2,162 issues rose and 687 fell. (Reporting by Sruthi Shankar and Tanya Agrawal in Bengaluru; Editing by Saumyadeb Chakrabarty)