GLOBAL MARKETS-US stocks tumble, Treasury yields dip after CPI, debate

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Major U.S. stock indexes red; Dow off most

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Bets cemented on 25 bp rate cut from the Fed

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Bond yields fall in wake of Presidential debate

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Oil prices steady as supply, hurricane concerns offset demand worries

(Updates to 10:40 EDT)

By Stephen Culp

NEW YORK, Sept 11 (Reuters) -

Wall Street stocks turned sharply lower on Wednesday, and U.S. benchmark Treasury yields touched their lowest in over a year as a key inflation report showed price growth continues to meander down an uneven path, all but ensuring the U.S. Federal Reserve will issue a 25 basis point rate cut next week.

All three major U.S. stock indexes veered decisively lower in early trading, while Brent crude prices rebounded after touching a 3-1/2 year low.

The Labor Department's Consumer Price Index (CPI) showed the annual inflation rate CPI shed 40 basis points to a cooler-than-expected 2.5%. The core measure - which excludes food and energy - posted a hotter-than-expected monthly gain of 0.3%, and an annual increase of 3.2%.

"Headline inflation was actually low, especially year-over-year, and it's headed in the right direction, approaching the Fed's 2% target," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

Still, the report "confirms that core inflation remains in the pipeline," Cardillo added. "It probably seals a quarter percentage point rate cut from the Fed."

Financial markets agree. At last glance, they have baked in an 83% probability that the Fed will cut its key policy rate by 25 basis points at next week's policy meeting, with a dwindling 17% chance of a double-sized 50 bp cut, according to CME's FedWatch Tool.

Market participants paid close attention to late Tuesday's U.S. Presidential debate, listening closely for potential policy clues from Vice President Kamala Harris and former President Donald Trump.

The presidential hopefuls butted heads over abortion, the economy, immigration and Trump's legal woes at their rancorous first debate.

The Dow Jones Industrial Average fell 685.45 points, or 1.68%, to 40,051.51, the S&P 500 lost 81.74 points, or 1.49%, to 5,413.78 and the Nasdaq Composite dropped 193.18 points, or 1.13%, to 16,832.71.

European stocks reversed earlier tech-driven gains as uneven CPI report sent U.S. stocks lower.

The pan-European STOXX 600 index lost 0.29% and MSCI's gauge of stocks across the globe shed 1.14%.

Emerging market stocks lost 0.55%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.44% lower, while Japan's Nikkei lost 1.49%.

Yields on 10-year U.S. Treasury notes initially spiked after the CPI report, but reversed after the bell, following the stock indexes lower.

Benchmark 10-year notes last rose 6/32 in price to yield 3.6236%, from 3.644% late on Tuesday.

The 30-year bond last rose 8/32 in price to yield 3.9415%, from 3.954% late on Tuesday.

The dollar was last nominally higher against a basket of world currencies after inflation data appeared to lock in a smaller, 25 bp interest rate cut.

The dollar index rose 0.09%, with the euro down 0.12% to $1.1006.

The Japanese yen strengthened 0.73% versus the greenback at 141.45 per dollar, while Sterling was last trading at $1.3009, down 0.54% on the day.

Oil prices steadied after Tuesday's sell-off as a drop in U.S. crude inventories and potential supply disruptions from Hurricane Francine balanced against concerns over softening global demand.

U.S. crude rose 0.21% to $65.89 per barrel and Brent was last at $69.52, up 0.48% on the day.

Gold prices dipped as hopes dimmed for a larger interest rate cut from the Fed at next week's policy meeting.

Spot gold dropped 0.4% to $2,505.61 an ounce.

(Reporting by Stephen Culp; Additional reporting by Lawrence White in London; Editing by Alexandra Hudson)