(Updates throughout after European market open)

* Europe stocks up after previous session's losses

* Oil prices stay elevated as Middle East conflict

disrupts supply, IEA warns of shortfall

* Market focus shifts to Trump-Xi meeting later in week

By Elizabeth Howcroft

PARIS, May 13 (Reuters) - European stocks rose in early

trading on Wednesday as markets rebounded from the previous

session's losses, and the price of oil edged down from recent

highs even as hopes dwindled for a peace deal between the United

States and Iran.

Wall Street stocks had fallen after U.S. inflation data on

Tuesday showed consumer prices rose the most in three years,

driven by an increase in energy-related costs.

The inflation data highlighted the economic fallout of the

U.S. and Israel's war on Iran, and pushed government bond yields

up as traders saw it as increasing the chances that central

banks will be forced to raise rates sooner than expected.

Market sentiment took a hit in Asian trade, but some signs

of recovering sentiment emerged by 0939 GMT, with Europe's STOXX

600 up 0.4% on the day. London's FTSE 100 was up 0.3%

.

Still, the 10-year U.S. Treasury yield was at 4.4629%,

having hit its highest since late March. Japan's

5-year and 20-year government bond yields hit new record highs

overnight.

Oil prices edged back down, but were still elevated, with

Brent crude at $107.3 a barrel, down 0.4% on the day and

West Texas Intermediate at $101.45 a barrel, down 0.7% on

the day.

The International Energy Agency said the world's oil supply

will fall short of total demand this year, as the war wreaks

havoc on Middle East oil production. The two sides have made no

progress on an agreement to end hostilities.

Markets were in "wait-and-see" mode as attention turns to

U.S. President Donald Trump's summit with Chinese counterpart Xi

Jinping in Beijing later this week, said Amelie Derambure,

senior multi-asset portfolio manager at Amundi in Paris.

"The preferred scenario for the market would be if China can

influence the ceasefire or the peace in Iran but it's considered

relatively unlikely," she said.

"This would be a positive surprise rather than the main

scenario for markets at the moment."

On Tuesday Trump said he did not think he would need China's

help to end the war with Iran.

Some ships have been able to pass through the Strait of

Hormuz, and Reuters reported on Tuesday that both Iraq and

Pakistan have cut deals with Iran to ship oil and liquefied

natural gas from the Gulf, demonstrating Iran's ability to

control energy flows through the strait.

Derambure said investors now expect the Strait of Hormuz to

open during the summer, but the market was "digesting the idea

that the closure could last longer than was expected last week".

The surge in energy prices has helped corporate earnings in

Europe and the United States, but put a strain on consumers.

U.S. earnings have also been driven higher by technology

companies' spending on investments related to artificial

intelligence.

"There is still this belief that equities - except in a

recession but that's on no one's radar for the moment - are

better positioned to resist, or to perform decently, in this

higher-inflation stronger-nominal-growth environment,"

Derambure added.

In Britain, gilt yields surged as Prime Minister Keir

Starmer's grip on power weakened. The 10-year yield at 5.08% was

off from the previous session's peak.

The dollar index was at 98.566, up 0.2% on the day

and the euro was down 0.3% at $1.1699.

The Japanese yen was at 157.88, having briefly spiked

Tuesday on "rate check" speculation, often seen as a precursor

to intervention.

Gold prices were down 0.4% on the day, at about $4,694 an

ounce.