GLOBAL MARKETS-US stock futures edge up, dollar holds after key inflation data

Updates after U.S. PCE data

By Greta Rosen Fondahn

Feb 28 (Reuters) - U.S. stock futures edged up and the dollar stayed close to two-week highs on Friday, after U.S. inflation data came in line with expectations in January, reinforcing bets that the Federal Reserve could cut rates twice this year.

The 12-month change in the personal consumption expenditures (PCE) price index ticked down to 2.5% last month from 2.6% in December, the Commerce Department's Bureau of Economic Analysis showed.

The core PCE measure, which excludes volatile items such as food and energy and is the Fed's preferred measure of inflation, fell to 2.6% from an upwardly revised 2.9%. The central bank targets an inflation rate of 2%

Both measures came in line with economists' expectations.

The threat of escalating tariffs has boosted the dollar, but it has also stoked worries about the impact of widespread duties on the U.S. economy.

Recent U.S. data has been soft, and traders have reacted by pricing in more policy easing from the Fed.

On Friday, markets were pricing in 61 basis points of further rate cuts this year, but the first rate cut is not fully priced in until July, according to LSEG data.

U.S. stock futures ESc1, NQc1 edged up slightly, indicating Wall Street was set to open higher.

"The inflation numbers still remain elevated, although they came in within expectations, but on a year-to-year basis there was a slight relief from the previous reading, but the report indicates that inflation remains sticky," said Peter Cardillo, chief market economist at Spartan Capital Securities.

"That means the pause will continue. And that means that the Fed may have a dilemma on its hands because the recent macro numbers are cooling and it shows signs of the economy cooling."

The dollar index, which gauges the greenback against six major peers, =USD stayed close to a two-week high of 107.45 it touched earlier in the day. It was last at 107.31.

Investors were already on edge on Friday, as the prospect of higher U.S. tariffs sent jitters through markets and revived concerns about an escalating global trade war.

U.S. President Donald Trump said on Thursday that 25% duties on imports from Canada and Mexico will come into effect on March 4 - not April 2 as he had suggested a day earlier - and said goods from China will be subject to an additional 10% duty. This week he also floated 25% tariffs on shipments from the European Union.

World stocks traded around their lowest levels in six weeks .MIWO00000PUS. Europe's STOXX 600 .STOXX was down 0.3%.

Bitcoin dipped below $80,000 for the first time in more than three months BTC= earlier in the day.

U.S. Treasury yields dropped after the data, leaving the benchmark 10-year yield US10YT=RR down 4.8 bps at 4.2387%. The yield had touched its lowest since December 11 earlier in the day at 4.221%.

Gold XAU= sagged 0.6% to $2,859 per ounce, the lowest since February 10.