* Israel shekel hovers near over 7-yr low, bonds steady

* Hungary's September CPI slows to 12.2% y/y

* Czech crown falls to lowest since mid-Sept

* EM FX up 0.2%; stocks gain 0.7%

Oct 10 (Reuters) - Sentiment improved across most emerging markets on Tuesday following dovish comments by U.S. Federal Reserve officials and a retreat in oil price, although trading was nervous as the conflict in Israel raged on.

MSCI's index for emerging markets stocks added 0.7% by 0838 GMT after falling in the previous session on concerns over an escalation of the conflict between Israel and the Palestinian Islamist group Hamas.

Investors continued to monitor developments on the violence, with Israel on Tuesday saying it had re-established control over the Gaza border.

The shekel was down 0.1% at 3.946 against the dollar, hovering near its lowest level since 2016. The currency has shed more than 10% since the start of the year.

"Prior to the attacks as well, the controversial plans by the Israeli government to reform and weaken the judiciary have weighed on the currency," said Charu Chanana, market strategist at Saxo Markets in a note.

"Israel’s central bank could continue to smoothen the volatility given its large FX reserves."

The country's longer-dated dollar bonds steadied after steep declines on Monday, with bonds in neighbouring Egypt, Jordan and Lebanon also inching higher.

However, the cost of insuring Israel's five-year sovereign debt against default surged to the most since 2016 on Tuesday.

Broader emerging market currencies rose 0.2% against the dollar.

Helping bring a sense of calm to markets, top ranking Federal Reserve officials on Monday indicated rising U.S. Treasury yields could steer the central bank away from further rate increases.

Oil prices also eased after an over 4% rally in the previous session that had stoked worries about renewed inflationary pressures across the world.

In eastern and central Europe, the Czech crown slipped 0.4% against the euro to its lowest in nearly a month after data showed consumer prices cooled faster than expected by 6.9% in September.

The Hungarian forint was up 0.4%. Data showed inflation eased to 12.2% in September year-on-year.

China's property sector woes continued, with Country Garden down 10.7% as the property developer warned on about its inability to meet offshore debt obligations.

China is looking to increase its budget deficit for 2023 as the government prepares to bring a new round of stimulus to help the economy meet the government's annual growth target, Bloomberg News reported on Tuesday.

For GRAPHIC on emerging market FX performance in 2023, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2023, see https://tmsnrt.rs/2OusNdX

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For CENTRAL EUROPE market report, see

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(Reporting by Johann M Cherian in Bengaluru, Editing by Louise Heavens)