* Oil rises, stocks fall as Middle East ceasefire falters

and Strait of Hormuz remains blocked

* Chip stock rally cools, Asian and European markets

decline, KOSPI drops 3.5%

* US inflation data awaited, bond yields climb, dollar

strengthens against major currencies

(Updates throughout)

By Amanda Cooper and Tom Westbrook

LONDON/SINGAPORE, May 12 (Reuters) - Oil crept higher

and the dollar rose on Tuesday as hopes faded for a deal to get

ships moving through the Strait of Hormuz, while a red-hot rally

in chip stocks cooled and traders waited on U.S. inflation

figures.

U.S. President Donald Trump said the month-old ceasefire with

Iran was "on life support" after Tehran's response to a U.S.

plan to end the war made clear the sides were far apart.

Brent crude futures were up 2% to about $106.4 a

barrel.

In Europe, the STOXX 600, which is still only 4%

below late February's record high, was down 1.2% in early

trading, while U.S. stock futures for the S&P 500 and

Nasdaq were down 0.4% and 0.7%, respectively. MSCI's

broadest index of Asian shares excluding Japan

fell 0.6%.

The shine even came off the almost unstoppable KOSPI

index in Seoul, which recoiled as it approached 8,000 points and

dropped about 3.5%, pulling down other regional markets.

Deutsche Bank strategist Jim Reid said with U.S. and Iran

appearing no closer to resolving their negotiation deadlock,

Brent crude prices were extending the previous day's rally.

"Markets are also pricing rising chances of lasting disruption,

with 6-month Brent futures up 2.54% to $89.50 a barrel

yesterday," he said.

Markets are keeping a watchful eye on Trump's visit to China,

which begins on Wednesday, with expectations low for either

progress on Iran or on the trade front.

"Investors should not expect sweeping agreements. A 'win'

would mean no new tariffs or export controls, and perhaps

small symbolic deals, such as agricultural

purchases, aircraft orders, or signals on rare earths," said

Daniel Casali, chief investment strategist at Evelyn Partners.

"These may seem minor, but stability at the margin matters."

APRIL INFLATION SPIKE EXPECTED IN US DATA

U.S. inflation data is due later on Tuesday, with the

headline consumer price index seen posting a 3.7% year-on-year

increase, after a 3.3% rise a month earlier.

Any suggestion that the Federal Reserve may need to hike

this year - rather than cut as investors had expected before the

war - could rattle markets.

Global bond yields have climbed, led by a selloff in gilts after

a speech by Prime Minister Keir Starmer on Monday did little to

dispel investor doubts about his political survival, following

Labour's heavy defeat in local elections.

UK gilt yields rose sharply in early trading on Tuesday.

The yield on 30-year bonds rose 11 basis points to 5.794%

, the highest since 1998, according to LSEG data.

Sterling fell 0.7% to $1.352, making it the

worst-performing major currency against the dollar.

Benchmark 10-year Treasury yields were up 2 bps

at 4.43%.

In the foreign exchange market, the dollar was on the front

foot, rising 0.2% against the yen to 157.525. After meeting with

Japanese Finance Minister Satsuki Katayama in Tokyo, U.S.

Treasury Secretary Scott Bessent said on X that coordination

with Japan was "constant and robust" in tackling undesirable,

excessively volatile currency moves.

The euro slipped 0.3% to $1.1747 and the Australian

dollar fell 0.5% to $0.7214. Australia's government is

expected to deliver a narrower budget deficit than previously

flagged on Tuesday.

(Additional reporting by Jihoon Lee in Seoul; Editing by John

Mair and Christian Schmollinger)