(Adds byline, dateline, comment in paragraphs 4-6, 10-11;

updates prices at 11:25 a.m. ET (1525 GMT)

By Herbert Lash and Amanda Cooper

NEW YORK/LONDON, May 10 (Reuters) - A gauge of global

equity markets closed in on a record high on Friday in

anticipation of central bank interest rate cuts and strong

corporate earnings, while the dollar rose despite signs of

slowing U.S. economic growth.

European shares were set to post their biggest weekly gain

since late January, with the pan-regional STOXX 600 index

headed to its sixth straight session of gains, while

the Dow industrials were on track to register eight daily

advances in a row as early gains on Wall Street turned mixed.

The strong performance on either side of the Atlantic pushed

MSCI's all-country world index toward a record

closing high.

Driving Wall Street higher are better-than-expected U.S.

corporate results and the potential for the Federal Reserve to

cut interest rates this year, said Thomas Hayes, chairman and

managing member at Great Hill Capital LLC in New York.

"Higher jobless claims than expected yesterday put the Fed

on its back foot. The Fed not only is watching inflation, but if

they saw some weakening in the jobs market that would

potentially be cause to move ahead with cuts," he said.

"There's still the likelihood we're going to see one or two

this year."

MSCI's gauge of stocks across the globe

gained 0.28%, while Europe's STOXX 600 index rose

0.73%. The Dow Jones Industrial Average rose 0.18%, the

S&P 500 gained 0.07% and the Nasdaq Composite

dropped 0.09%.

The dollar pared initial declines and turned modestly higher

as investors assessed a reading on U.S. consumer sentiment and

sifted through a flurry of comments from Fed officials.

The University of Michigan's preliminary reading of consumer

sentiment came in at 67.4 for May, a six-month low and below the

76.0 estimate of economists polled by Reuters. In addition, the

one-year inflation expectation climbed to 3.5% from 3.2%.

"The U.S. exceptionalism trade is fading. We did see a

decline yesterday based on the higher-than-expected rise in

jobless claims," Karl Schamotta, chief market strategist at

Corpay in Toronto.

"The underlying trend here does it does look as if the

dollar's essentially peaking here and then it might decline."

The dollar index rose 0.11%, with the euro

down 0.13% to $1.0767 as the yen headed toward its fourth

decline of the week, weakening 0.26% to 155.86 per dollar.

The pound was poised for a modest weekly loss after the Bank

of England (BoE) on Thursday paved the way for the start of rate

cuts as soon as next month and data showed the British economy

exited a mild recession in the first quarter of this year.

INFLATION AHEAD

Markets await both next week's producer price index and the

consumer price index for signs that U.S. inflation has resumed

its downward trend towards the Fed's 2% target rate.

Hotter-than-expected inflation reports last month had

quashed any lingering expectations of near-term U.S. rate cuts.

Markets are now fully pricing in a cut only in November though

there is still a chance of the Fed moving in September.

In contrast, markets now imply a 50-50 chance of a BoE cut

in June and are almost fully priced for August. They also imply

an 88% chance the European Central Bank will ease in June.

BOE Governor Andrew Bailey said there could be more

reductions than investors expect, the latest sign of the growing

divergence between the Europe and U.S. rate outlooks.

Sterling slid 0.10% at $1.2512, having touched a

more than two-week low of $1.2446 on Thursday.

Traders currently anticipate roughly 45 basis points of cuts

this year from the Fed. In comparison, traders are pricing in 58

bps of easing from the BoE this year, while anticipating 70 bps

of cuts from the ECB.

Treasury yields rose with no major catalysts to drive

direction as traders waited on key inflation data for April next

week to guide expectations of Federal Reserve policy.

Yields hit one-month lows last week after a

softer-than-expected employment report for April re-ignited bets

that the U.S. central bank will make two 25 basis point interest

rate cuts this year.

The two-year Treasury yield, which reflects

interest rate expectations, rose 4.8 basis points to 4.855%,

while the yield on the benchmark 10-year note was up

4.9 basis points at 4.498%.

Global benchmark Brent hovered above $84 a barrel after data

this week signaled growing demand in the U.S. and China, the

world's two largest crude consumers, while festering conflict in

the Middle East also provided support.

U.S. crude recently fell 0.04% to $79.23 per barrel

and Brent was at $83.73, down 0.18% on the day.

Spot gold added 0.8% to $2,363.97 an ounce.