GLOBAL MARKETS-US inflation relieves Wall Street, yields stable

( updates with prices after U.S. open)

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Wall Street indexes climb at open

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U.S. inflation comes in line with economist expectations

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Rate cut expectations buoy gold

By Isla Binnie

NEW YORK, Sept 26 (Reuters) - Steady U.S. inflation data reassured Wall Street, leading to gains on Friday while Treasury yields stayed largely flat and gold firmed on expectations the Federal Reserve may continue cutting interest rates this year.

U.S. consumer spending rose slightly more than expected in August while the inflation rate rose to 2.7% from 2.6% in July, in line with economists' expectations.

Concerns continued to percolate around fresh White House tariffs on pharmaceuticals which had weighed on Asian bourses and put pressure on the dollar.

Price pressure is still to come, Citigroup's global chief economist Nathan Sheets said.

"Firms aggressively accumulated inventories during the first half of the year, and this has given them scope to delay price increases. But that process is now playing through," Sheets said.

The Dow Jones Industrial Average was up 0.70%, the S&P 500 rose 0.46% and the Nasdaq Composite rose 0.18%.

President Donald Trump imposed new 100% duties on imported branded drugs as well as new tariffs on goods ranging from trucks to kitchen cabinets on Thursday, in a move that again raised the specter of a trade war and complicated the inflation forecasts.

Eli Lilly (LLY) shares rose 1.7%. Truck maker Paccar (PCAR) , which manufactures most of its trucks for the U.S. market domestically, gained 4.4% to top the S&P 500.

NOT FALLING OFF A CLIFF

Friday's personal consumption expenditures (PCE) index functions as a key component of the Federal Reserve's inflation outlook.

U.S. Treasury yields, which influence borrowing costs, moved little after the data was released.

The yield on benchmark U.S. 10-year notes rose 0.9 basis points to 4.183%, from 4.174% late on Thursday. The 30-year bond yield fell 0.1 basis points to 4.7516% from 4.753% late on Thursday.

"The one bright spot was that income and spending were a little bit firmer than expected, which means the consumer isn't falling off a cliff as the market was expecting," said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities.

Gold, a safe haven which usually benefits from lower interest rates, firmed and spot prices were last quoted 0.54% higher at $3,769.05 an ounce.

Investors now estimate an 85.5% probability of a rate cut in October and a 62% chance of another in December, the CME FedWatch Tool shows.

The Fed made its first interest rate cut of the year last week, and signalled further easing was to come. Treasury yields rose in spite of that.

This week, they declined after Fed Chair Jerome Powell gave few hints as to when cuts would come and emphasised the delicate balance facing the U.S. central bank.

Richmond Fed Bank President Thomas Barkin told Bloomberg Television that tariffs meant he had very low confidence in inflation forecasts right now. Fed Vice Chair for Supervision Michelle Bowman speaks later on Friday.

(Reporting by Naomi Rovnick. Additional reporting by Rae Wee; Editing by Kate Mayberry, Stephen Coates, Aidan Lewis and Chizu Nomiyama)