NEW YORK, June 11 (Reuters) - The Nasdaq and the S&P 500 rose on Tuesday, reversing early losses and on track for another record closing high as investors turned a cautious eye to upcoming inflation data and the U.S. Federal Reserve's policy meeting.

Benchmark Treasury yields extended their decline ahead of the Labor Department's crucial Consumer Price Index (CPI) report.

While the Dow Jones Industrial Average remained in negative territory, the S&P 500 turned green and the Nasdaq gained momentum as Fed policy makers convened for their two-day policy meeting.

"Investors are playing it safe, with tomorrow’s CPI report even though it's expected to show a slight decline," said Sam Stovall, chief investment strategist of CFRA Research in New York.

"(But) we continue to see all-time highs, and you don’t want to make emotional decision," Stovall added. "The S&P could set up another all-time high today, CPI could come in weaker than expected, and the Fed could sound optimistic that at least one rate cut could occur before year-end."

While financial markets expect no change to the Fed funds target rate, the Federal Open Markets Committee (FOMC) is expected to release its Summary of Economic Projections, which should help to illuminate the central bank's forward policy path.

The data-reliant Fed will watch the CPI data due early Wednesday, which is expected to show inflation remains on its meandering path down to the central bank's 2% annual target.

It will be the second gauge of U.S. inflation in May, following Friday's hotter-than-expected wage growth numbers.

French President Emanuel Macron's announcement that he will call a flash election kept adding fuel to the fire of a tumultuous year in geopolitics, which has boosted the dollar.

"With Europe leaning to the right, with Modi losing his majority, and Mexico’s election, change is in the air," Stovall said, "more uncertainty in Europe will add to the strength of the U.S. dollar."

The Dow Jones Industrial Average fell 125.36 points, or 0.32%, to 38,742.68, the S&P 500 gained 8.92 points, or 0.17%, to 5,369.71 and the Nasdaq Composite added 119.85 points, or 0.7%, to 17,312.38.

European shares extended the previous session's losses sparked by political uncertainties in France, as investors also turned their focus to the Federal Reserve.

The pan-European STOXX 600 index lost 0.93% and MSCI's gauge of stocks across the globe shed 0.11%.

Emerging market stocks lost 0.42%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.65% lower, while Japan's Nikkei rose 0.25%.

The dollar gained some ground against a basket of world currencies in anticipation of the CPI inflation report, while the euro dropped amid political turmoil brought about by far right gains in European elections and the snap election in France.

The dollar index rose 0.08%, with the euro down 0.19% to $1.0743.

The Japanese yen was flat to 157.05 per dollar, while sterling was last trading at $1.2744, up 0.11% on the day.

U.S. Treasury yields dipped ahead of the CPI data and the Fed decision.

Benchmark 10-year notes last rose 17/32 in price to yield 4.404%, from 4.469% late on Monday.

The 30-year bond last rose 31/32 in price to yield 4.5365%, from 4.595% late on Monday.

Crude oil prices edged higher after the Energy Information Administration (EIA) raised its world oil demand forecast.

U.S. crude rose 0.21% to settle at $77.90 per barrel, while Brent settled at $81.92 per barrel, up 0.36% on the day.

Gold prices reversed an earlier drop and were last modestly higher as investors kept their focus on the Fed's economic outlook.

Spot gold added 0.2% to $2,314.16 an ounce.

(Reporting by Stephen Culp; Additional reporting by Wayne Cole in Sydney and Alun John in London; Editing by Susan Fenton and David Gregorio)