(Updates at 1217 GMT)

By Samuel Indyk and Rae Wee

LONDON, May 30 (Reuters) - European stocks edged higher

on Thursday as bonds regained some ground after a sell-off the

day before on bets that global interest rates would stay high

due to sticky inflation.

The dollar softened as U.S. Treasury yields slipped back,

while metals and energy prices came under pressure.

The latest slowdown in the global risk rally has come on the

back of data pointing to lingering inflationary pressures across

major economies and a flood of bond sales lifting yields.

"There are two forces colliding here," said Ben Laidler,

global markets strategist at eToro.

"It's being driven by the very heavy government bond

issuance and markets that are still afraid of interest rates

staying higher for longer and sticky inflation."

But for now, bond markets have steadied, which has supported

equity markets in Europe.

The pan-European STOXX 600 rose just under 0.4%,

having fallen over 1% on Wednesday, its biggest one-day drop

since mid-April.

Germany's DAX, France's CAC and Britain's

FTSE 100 eked out gains of 0.1%-0.4%.

Wall Street futures were soft, with S&P and Nasdaq

eminis both shedding around 0.3%.

Germany's 10-year bund yield, which earlier

touched a six-month high at 2.687%, was little changed at

2.685%. Bond yields move inversely to prices.

Data on Wednesday showed German inflation rose slightly more

than forecast to 2.8% in May, ahead of the closely watched wider

euro zone bloc's reading on Friday.

A higher-than-forecast inflation reading on Friday is

unlikely to derail the European Central Bank from lowering

borrowing costs next week but could have implications for future

policy moves.

"The stickiness of services inflation remains a source of

concern," eToro's Laidler said.

"It's not enough to stop the ECB from cutting next week but

it does call into question how quickly and how far they go after

that."

Markets are pricing in around 60 basis points (bps) of

easing from the ECB this year, implying two

quarter-point rate cuts and around a 40% chance of a third.

The main highlight of the week for markets, however, is

Friday's U.S. core personal consumption expenditures (PCE) price

index report - the Fed's preferred measure of inflation.

Expectations are for it to hold steady on a monthly basis.

"If we look at data that has led us to this point, I have a

hard time believing a softer-than-expected PCE report will

arrive on Friday," said Matt Simpson, senior market analyst at

City Index.

"From this perspective, PCE not ticking higher could be a

welcome surprise. But should it heat up further from sticky

levels, appetite for risk will be taken out the back for a good

kicking."

U.S. Treasury yields dipped on Thursday, having risen over 8

bps the day before, in part due to a weak debt auction. The

benchmark 10-year yield was last at 4.596%, while

the two-year yield stood at 4.964%.

Japanese government bond (JGB) yields notched fresh

multi-year peaks on growing expectations that further rate hikes

from the Bank of Japan could be imminent.

The 10-year JGB yield peaked at 1.1% in early

Asia trade, its highest since July 2011.

DOLLAR GIVES BACK SOME GAINS

In the currency market, the dollar softened, having earlier

knocked the euro to an over two-week low of $1.07885.

The yen last stood at 156.82 per dollar, having

slid to a four-week low of 157.715 in the previous session.

The dollar index, which measures the currency against

six others including the euro and yen, was down 0.2%, after a

0.5% jump the day before.

Oil prices lost ground on worries over weak U.S. gasoline

demand and higher-for-longer interest rates.

Brent fell 0.5% to $83.14 per barrel while U.S.

crude eased a similar amount to $78.87.

Spot gold fell 0.1% to $2,337 an ounce.