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MSCI's ACWI world stocks index at lowest since Nov. 2020

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European stocks regain ground, U.S. futures up

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Dollar dips after 6 days of gains, yen at near 1998 low

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U.S. CPI data set to drive bets on Fed rate hike

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UK markets leap on report govt considering scrapping some tax cuts

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Graphic: Global asset performance http://tmsnrt.rs/2yaDPgn

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Graphic: World FX rates http://tmsnrt.rs/2egbfVh

LONDON, Oct 13 (Reuters) - World stocks steadied near a two-year low and Japan's yen was pinned at around 1998 levels on Thursday, as investors braced for U.S. inflation data likely to shape the size of the Federal Reserve's next interest rate hike.

Global markets have suffered a torrid few weeks but there was brief respite ahead of the U.S. consumer price reading as Europe's main share markets and Wall Street futures both stabilised after six days in the red.

The seemingly-unstoppable dollar took a breather too, while UK markets leapt on a report that the British government was discussing scrapping more of the tax cuts laid out just last month.

It came just a day before the Bank of England is due to end its emergency gilt market stabilisation measures and helped both European stocks and Wall Street futures cement turnarounds after respective 4% and 5% falls over the last 5 days.

Markets are increasingly worried that rapidly rising interest rates will lead to recession. Data confirmed German harmonised inflation was 10.9% y/y in September and almost 10% in Sweden, but all eyes are on U.S. consumer price inflation data due at 1230 GMT.

Paul O'Connor, Head of Multi-Asset at Janus Henderson Investors, said the question investors have is whether central banks like the Fed are getting close to the end of their interest rate hikes.

"Are we there yet? My feeling is that we are quite close to pricing in peak rates, but on the growth story I think there are probably a lot of downgrades still to come," he said.

Interest rate hikes take a year to 18 months to fully take effect. As a result "it is quite plausible that around the end of the year, the central banks declare a pause...labour markets will be cooling and housing markets will be falling."

The headline U.S. CPI figure is expected to have slipped back two tenths of a percentage point to a still-bruising 8.1%, but the 'core' number which strips out the more volatile components is forecast to rise again to 6.5% from 6.3%.

Minutes of the Fed's latest policy meeting released on Wednesday showed many officials "emphasized the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action".

Several policymakers did stress, however, that it would be important to "calibrate" the pace of further rate hikes to reduce the risk of "significant adverse effects" on the economy.

Treasury yields were choppy in Europe. The U.S. 10-year benchmark yield initially ticked up to 3.923% but then dropped back to 3.894% with most of the equivalent European yields down a touch too.

Markets lay 90% odds for another 75 basis-point Fed rate hike in November, versus 10% probability of a half-point bump.

CONCERNED

In Asia, widespread equity market weakness had seen Japan's Nikkei slip 0.6% and South Korea's Kospi tumble 1.8% as news that Taiwanese chipmaking giant TSMC was seeing demand drop and was cutting its investment budget by at least 10% hit the wider region's tech sector.

Hong Kong's Hang Seng dropped 1.9% and mainland Chinese blue chips lost 0.3% to leave MSCI's index of Asia-Pacific shares close to 2 1/2-year lows.

U.S. emini stock futures offered some hope though, rising 0.5% after the S&P 500's sixth straight drop on Wednesday.

"The risk of an over-tightening episode and some mishap in financial markets is higher than I can remember," said Tom Nash, a fixed income portfolio manager at UBS Asset Management in Sydney.

HEROIC

The dollar index, which gauges the greenback against six major rivals, inched down to 112.92 ahead of the CPI data.

The U.S. currency remained close to a fresh 24-year high to the yen and last changed hands at 146.79 while sterling roared up almost 1.5% to $1.1263 on the reports of possible tax cut changes. It had hit two-week trough of $1.0925 on Tuesday.

Benchmark 10-year gilt yields, which erupted after the UK government laid out tax cutting plans last month, had swung from a fresh 14-year peak at 4.632% to 4.249% in early afternoon trading.

The Bank of England has insisted that its emergency bond market support will expire on Friday as originally announced, countering media reports of continued aid if necessary.

BoE Governor Andrew Bailey had riled markets on Tuesday by saying British pension funds and other investors hit hard by a slump in bond prices had until that deadline to fix their problems.

"I would say it's heroic to say the risk of some sort of systemic problem has been extinguished because these are big moves and we don't now how much deleveraging needs to be done," Janus Henderson's O'Connor said. "Markets still feel very dysfunctional".

Meanwhile, crude oil markets regained their footing following a 2% slide on Wednesday amid worries over demand.

Brent crude futures bounced 23 cents, or 0.25%, to $92.69 a barrel, while U.S. West Texas Intermediate crude was up 21 cents, or 0.2%, at $87.44 a barrel.

Last week, the producer group comprising the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia pushed prices higher when it agreed to cut supply by 2 million barrels per day (bpd).

(Additional reporting by Kevin Buckland in Tokyo, Editing by Alexander Smith, Kirsten Donovan)