* Oil rises, stocks fall as Middle East ceasefire falters

* South Korea's KOSPI drops after hitting record

* U.S. inflation swollen by gas prices, bond yields

climb, dollar strengthens

(Updates prices to U.S. morning trading)

By Sinéad Carew and Amanda Cooper

NEW YORK/LONDON, May 12 (Reuters) - Equity indexes

dipped on Tuesday as U.S. inflation climbed while oil gained for

a third straight day and the dollar rose as hopes faded for a

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

rose 4.19% to $102.18 a barrel and Brent rose

to $108.25 per barrel, up 3.88%.

"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."

Roland also said that a 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 down 2.3%, pulling

down other regional markets.

On Wall Streetat 11:05 a.m. ET (1505 GMT), the Dow Jones

Industrial Average fell 270.62 points, or 0.54%, to

49,433.85, the S&P 500 fell 58.99 points, or 0.80%, to

7,353.85 and the Nasdaq Composite fell 358.20 points, or

1.36%, to 25,915.92.

MSCI's gauge of stocks across the globe

fell 9.84 points, or 0.89%, to 1,098.45.

The pan-European STOXX 600 index fell 1.08%.

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

4.5 basis points to 4.457%, from 4.412% late on Monday while the

30-year bond yield rose 3.4 basis points to

5.0211%.

The 2-year note yield, which typically moves in

step with interest rate expectations for the Federal Reserve,

rose 5.1 basis points to 3.998%.

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

response to the pressure building on 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 10.2 basis points to 5.104%. The British 2-year

yield rose 5 basis points to 4.539%.

Sterling weakened 0.64% to $1.352, 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 0.41% to 98.37, with the euro down 0.42% at $1.1732.

Against the Japanese yen, the dollar strengthened

0.3% to 157.63.

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 Korean won weakened 1.11% against the dollar to

1,490.92 per dollar.

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 1.41% to $4,667.29 an ounce. U.S. gold

futures fell 0.71% to $4,685.20 an ounce.