GLOBAL MARKETS-Inflation fears stalk stocks

(Updates throughout)

* MSCI's global stock gauge down for third straight day

* Markets await U.S. inflation report at 1230 GMT

* U.S. Treasury yields in tight range

* World FX rates https://tmsnrt.rs/2RBWI5E

By Tom Arnold

LONDON, May 12 (Reuters) - A sell-off in global shares extended to its longest losing streak in two months on Wednesday as surging commodity prices and growing inflationary pressure in the United States prompted bets on earlier interest rate hikes and higher bond yields.

A subdued recovery emerged in European equity markets, with the continent's STOXX 600 index adding 0.3% after Tuesday's slump.

Sentiment was aided by comments from the European Commission that the euro zone will rebound from its COVID-19 slump more than expected and data showing Britain's pandemic-battered economy grew more strongly than anticipated in March.

MSCI's broadest index of Asia-Pacific shares outside Japan slumped 0.8%, having earlier touched its lowest since March 26.

After hitting fresh record highs earlier in the week, MSCI's gauge of stocks across the globe was 0.2% down, its third consecutive day of losses, the longest-running streak since March 4.

Investor focus was locked on the U.S. consumer price index report to be released by the U.S. Labor Department at 1230 GMT, with analysts expecting a 3.6% lift in year-on-year prices, boosted by last April's low base.

U.S. Treasury yields remained stuck in a tight range. The yield on benchmark 10-year Treasuries drifted lower to 1.6183%, below the recent peaks of late March and far from the 1.9% level at the start of 2020 before the coronavirus pandemic.

Euro zone bond yields held below recent highs touched on Tuesday. Germany's 10-year yield was down 1 basis point to -0.17%, after rising to the highest since March 2020 at -0.152% on Tuesday.

Analysts said a combination of inflation fears and some investors cutting their exposure to overstretched stocks or sectors was behind the recent downturn.

"It's a battle of two narratives: one of reflation and roaring 20s, with fiscal stimulus creating higher levels of growth; and the other is the lower-for-longer idea where ultimately inflation proves hard to generate and interest rates stay at low levels," Kiran Ganesh, head of multi asset at UBS Global Wealth Management in London.

"These two narratives are conflicting and are in investors' minds at the same time."

Japan's Nikkei reversed early gains to shed 1.9%, while Taiwan's benchmark index fell as much as 6% from all-time highs to levels seen in February on fears it may raise its COVID-19 alert level in coming days, which would lead to closure of shops dealing in non-essential items as infections rise.

E-mini futures for the S&P 500 stumbled 0.4% while futures for the tech-heavy Nasdaq were down 0.6%.

Analysts, however, doubted the broader equities sell-off would extend much further in a world of easy accommodative policy and fiscal largesse.

"Despite the severity of the moves, we sensed limited panic in our client conversations with many using (the) weakness as an opportunity to buy the dip, particularly in the value orientated areas e.g. banks, energy and insurance," JPMorgan analysts wrote in a note.

The equity rout barely helped drive any safe haven flows into the greenback even as futures pointed to another negative open for Wall Street.

"What is unusual about the last two days is that the equity-market angst did not provide the U.S. dollar with a notable lift," said Alvin T. Tan, head of Asia FX strategy at RBC Capital Markets.

The dollar hovered near a 2-1/2-month low versus major peers, as traders clung on to bets that the Federal Reserve would remain steadfast in its easy policy settings ahead of the release of the U.S. consumer price index data expected to show a sharp rise in annual U.S. inflation.

The U.S. Federal Reserve expects higher inflation though officials have pointed to transient factors and base effects for the temporary rise.

The dollar index, which measures the greenback against six major currencies, was at 90.291.

The currencies of major natural resource suppliers such as Canada have been buoyant amid rising commodity prices.

The loonie was not far from a 3-1/2-year high of C$1.2078.

The Australian dollar, another proxy for commodity prices, pulled away from a 10-week high struck on Monday to reach $0.7804.

Oil prices were higher, with U.S. crude adding 1.2% to $66.05 a barrel. Brent crude added 1.1% to $69.29 per barrel.

Spot gold was 0.2% lower at $1,833 an ounce.

In cryptocurrencies, ether hit a fresh record high touched on Monday and was last at $4,261.08. The value of the second-biggest digital token has surged over 5.5 times so far this year.

(Reporting by Tom Arnold in London and Swati Pandey in Sydney; Additional reporting by Sujata Rao; Editing by Shri Navaratnam, Kim Coghill and Giles Elgood)