GLOBAL MARKETS-US stocks, dollar rise with eyes on Fed and strong data

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U.S. retail sales, manufacturing production rise

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Wall Street rises ahead of Fed decision

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Treasury yields rise

(Updates prices at 10.16 ET)

By Isla Binnie

NEW YORK, Sept 17 (Reuters) - U.S. stocks followed European peers higher and the dollar firmed on Tuesday, as unexpectedly strong economic data from Washington allayed slowdown fears a day before an expected interest rate cut by the Federal Reserve.

Betting increased over the last week that the Fed could cut deeper than previously expected, by half a percentage point, after media reports revived the prospect of more aggressive easing.

Data on Tuesday showed U.S. retail sales rose in August and production at factories rebounded.

"That points to a healthy state of the economy," said Peter Cardillo, chief market economist at Spartan Capital Securities. Cardillo expects Fed chair Jerome Powell to cut rates by 25 basis points on Wednesday, and would be looking for clues to future moves.

"He might hint the Fed could be more aggressive in the coming meetings... I think they start off being cautious," he said.

The S&P 500 rose to an all-time intraday high and was on track for a record close.

Across the broader market, traders are betting on a 61% probability that the Fed will cut rates by 50 basis points on Wednesday and a 39% probability of a 25 basis point cut, according to CME Group's FedWatch tool.

On Wall Street, the Dow Jones Industrial Average rose 0.43%, to 41,799.35, the S&P 500 gained 0.55%, to 5,664.15 and the Nasdaq Composite gained 0.78%, to 17,729.36

MSCI's All-World index rose 0.41%, to 831.82.

"Everyone's pricing in the soft landing and it feels like the Fed have been quite transparent that we're in a rate cutting environment. Generally stocks have done well post those sort of environments," said Eddie Kennedy, head of bespoke discretionary fund management at Marlborough Investment Management.

STRONGER DOLLAR

The dollar perked up from its recent lows against most major currencies on Tuesday. The index, which measures the dollar against a basket of currencies gained 0.12% at 100.82.

Beyond the United States, the Bank of England (BoE) and the Bank of Japan (BOJ) also meet this week to discuss monetary policy, but unlike the Fed are expected to keep rates on hold.

The dollar strengthened against the yen, gaining 0.71% at 141.6.

The two-year U.S. Treasury yield, which typically reflects near-term rate expectations, ticked up 4.8 basis points to 3.6028%, having fallen to a two-year low of 3.528% in the previous session.

The benchmark 10-year yield rose 2.3 basis points to 3.644%, from 3.621% late on Monday.

In Asia, China's stuttering economic recovery continued to weigh on sentiment after data over the weekend showed the country's industrial output growth slowed to a five-month low in August, while retail sales and new home prices weakened further.

Oil prices rose as the industry continued to survey the impact of Hurricane Francine on output in the U.S. Gulf of Mexico.

U.S. crude gained 1.34% to $71.03 a barrel and Brent rose to $73.47 per barrel, up 0.99% on the day.

Spot gold slipped 0.06% to $2,581.09 an ounce, having touched a record high on Monday.

(Reporting by Samuel Indyk, Editing by Shri Navaratnam, Sharon Singleton, Chizu Nomiyama and Barbara Lewis)