Global stock index edges up, dollar falls after U.S. inflation reading

* World stocks hover near 2-year highs

* Oil on track for second consecutive weekly gain

* U.S. dollar eases, Treasury yields rise

* Graphic: World FX rates http://tmsnrt.rs/2egbfVh

NEW YORK/LONDON, Jan 26 (Reuters) - MSCI's global stock index was up slightly on Friday while the U.S. dollar fell after the U.S. Federal Reserve's favored inflation reading showed moderating prices in line with expectations days ahead of its closely monitored meeting.

Treasury yields rose on concerns about the growing supply of government debt, with next week's Federal Reserve meeting in focus and expectations that the Fed will have to address efforts to reduce its balance sheet.

The personal consumption expenditures (PCE) price index increased 0.2% last month after an unrevised 0.1% drop in November, the Commerce Department's Bureau of Economic Analysis said. In the 12 months through December, the PCE price index increased 2.6%, matching November's unrevised gain.

Still, pending U.S. home sales shot up in December by the most since June 2020, indicating prospective buyers may be getting drawn from the sidelines by stabilizing mortgage rates.

"Broadly this week we got a nice support for the soft landing scenario," said Mona Mahajan, principal and senior investment strategist, Edward Jones, New York citing Friday's inflation reading, Thursday's strong GDP data and improving manufacturing and services data earlier in the week.

But Mahajan detected jitters ahead of the Fed's meeting, ending on Jan. 31, as the central bank will likely "acknowledge the better inflation and economic data but may still push back on the markets pricing of six rate cuts this year".

"Investors are in wait and see mode," she said, adding that the Fed "will probably not yet declare mission accomplished".

The MSCI world equity index, which tracks shares in 49 nations, gained 0.12%, after earlier hitting its highest level in almost two years.

Wall Street indexes were a mixed bag at 02:49 p.m. (1949 GMT) the Dow Jones Industrial Average rose 60.86 points, or 0.16%, to 38,110.19 and the Nasdaq Composite lost 33.35 points, or 0.21%, to 15,477.15.

The S&P 500 was down 0.05 points at 4,894.11 after 5 straight sessions of record closing highs.

Europe's equity index earlier closed up 1.1%, marking a 3% gain for the week, which was its biggest weekly percentage advance since the week starting Oct. 30.

This was after the European Central Bank (ECB) signaled on Thursday that it could cut rates by April. While ECB chief Christine Lagarde said it was "premature" to discuss easing, money markets priced an almost 85% chance of a first quarter point rate cut in April.

In currencies, the dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was down 0.06%, to 103.43.

The dollar rose 0.27% against the yen to 148.05 but the euro was up 0.1% on the day at $1.0859, having lost 1.59% in a month.

In Treasuries, the yield on benchmark 10-year Treasury notes rose to 4.1604% compared with its U.S. close of 4.132% on Thursday. The two-year yield, which rises with traders' expectations of higher Fed fund rates, touched 4.3633% compared with a U.S. close of 4.314%.

In commodities, oil prices settled higher as positive U.S. economic growth and signs of Chinese stimulus boosted demand sentiment, while Middle East supply concerns added support.

U.S. crude settled up 0.84% at $78.01 a barrel, their highest settlement level since Nov. 29. Brent crude finished at $83.55 per barrel up 1.36% on the day for their highest closing level since Nov. 30.

In precious metals, gold held steady as investors' attention shifted to the Fed's policy meeting next week as they waited for insights into the interest rate outlook.

In Asia, MSCI's broadest index of Asia-Pacific shares excluding Japan closed down 0.4%, but snapped a three-week losing streak for a 1.6% weekly rise.

China's CSI blue-chip index dipped 0.3% on Friday but scored a near 2% weekly gain after three weeks of losses.

Investors poured almost $12 billion into Chinese equity funds in the week to Wednesday, a BofA Global Research report calculated on Friday. That marks the largest inflow since 2015 and the second largest ever. (Reporting by Sinéad Carew in New York, Marc Jones in London, Amruta Khandekar in Bengaluru; Editing by Alex Richardson and Mark Potter)