* Oil settles higher, stocks fall with US-Iran peace deal

progress faltering

* South Korea's KOSPI drops after hitting record high

* US inflation swollen by gas prices, bond yields climb,

dollar strengthens

(Updates after U.S. stock market close)

By Sinéad Carew and Amanda Cooper

NEW YORK/LONDON, May 12 (Reuters) - Wall Street's main

equity indexes dipped on Tuesday and the dollar rose as U.S.

inflation climbed and oil gained for a third straight day as

hopes faded for a Middle East peace deal to get ships moving

through the Strait of Hormuz.

In April, U.S. consumer prices (CPI) rose sharply for a

second straight month, resulting in the largest annual increase

in inflation in nearly three years, bolstering expectations that

the Federal Reserve would keep interest rates unchanged for a

while.

The U.S. war on Iran has driven oil prices higher, resulting

in more expensive gasoline, diesel and jet fuel, and economists

expect to see second-round effects in the months ahead.

The data followed U.S. President Donald Trump's announcement

on Monday that a 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.

With that, U.S. crude settled up 4.19% at $102.18 a

barrel while Brent settled at $107.77 per barrel, up

3.42% on the day.

"There's been speculation about the Iran conflict flaring

back up. That's pushed oil prices higher," said Emily Roland,

co-chief investment strategist at Manulife John Hancock

Investments, also noting that rising Treasury yields added to

pressure on stocks. "Some of that was on the back of the CPI

report this morning that actually was pretty tame underneath the

surface."

And while investors had been hoping for progress on the Iran

conflict from a meeting between Trump and Chinese President Xi

Jinping, Trump said he does not think he will need China's help

to end the war.

"China has seemingly avoided involvement in the matter and

is likely to retain this posture going forward. No need to drag

themselves into this quagmire," wrote Jack Janasiewicz, lead

portfolio strategist at Natixis Investment Managers Solutions.

MSCI's gauge of stocks across the globe

fell 4.97 points, or 0.45%, to 1,103.32.

Earlier, the pan-European STOXX 600 index finished

down 1.01%.

On Wall Street, the Dow Jones Industrial

Average rose 56.09 points, or 0.11%, to 49,760.56, the

S&P 500 fell 11.88 points, or 0.16%, to 7,400.96 and the

Nasdaq Composite fell 185.92 points, or 0.71%, to

26,088.20. The PHLX semiconductor index fell 3% after

hitting a record high on Tuesday.

Manulife's Roland said the decline in semiconductor stocks

was affecting sentiment and pointed to a pullback in technology

shares in South Korea "which have been on an absolute tear in

recent weeks."

This was after presidential policy adviser Kim Yong-beom

floated an idea of "citizen dividends", as he argued in a social

media post that excess earnings in the era of AI should be

redistributed to all citizens and that South Korea could be the

first country to make that happen.

The KOSPI index in Seoul recoiled after it hit a

record high just below 8,000 points, and finished 2.3% lower,

pulling down other regional markets.

RISING GLOBAL BOND YIELDS

In the bond market, U.S. Treasury yields rose on concerns

about continued energy supply disruptions in the Middle East and

after data showing rising U.S. consumer prices.

The yield on benchmark U.S. 10-year notes rose

4.9 basis points to 4.461%, from 4.412% late on Monday, while

the 30-year bond yield rose 3.8 basis points to

5.0253%.

The 2-year note yield, which typically moves in

step with interest rate expectations for the Federal Reserve,

rose 4.2 basis points to 3.989%.

Rising global bond yields were led by a selloff in gilts in

response to the pressure building on British Prime Minister Keir

Starmer, who on Tuesday defied calls to resign.

He told ministers he would "get on with governing" despite a

"destabilising" 48 hours of growing calls to set out a timetable

for his departure after heavy losses in local elections.

In the UK bond market, the British 10-year gilt

yield rose 0.4 basis points to 5.107% while the 2-year gilt

yield fell 0.1 basis points to 4.551%.

Sterling weakened 0.54% to $1.3533, making it one of

the weakest-performing major currencies on the day.

Elsewhere in currencies, the U.S. dollar advanced for a

second straight session after the economic data and

amid uncertainty over the durability of the U.S.-Iran ceasefire.

The dollar index, which measures the greenback

against a basket of currencies including the yen and the euro,

rose 0.35% to 98.31, with the euro down 0.38% at $1.1737.

Against the Japanese yen, the dollar strengthened

0.31% to 157.64.

Gold prices were under pressure as fading hopes for a peace

deal added to concerns about inflation and the prospect of

higher global interest rates.

Spot gold fell 0.43% to $4,713.93 an ounce. U.S. gold

futures fell 0.4% to $4,700.00 an ounce.