GLOBAL MARKETS-US Treasury yields, dollar ease with Trump's Fed battle fanning concern

By Caroline Valetkevitch

NEW YORK, Aug 26 (Reuters) - Shorter-dated U.S. Treasury yields and the dollar fell on Tuesday, with President Donald Trump's attempt to fire a Federal Reserve governor raising concerns about the U.S. central bank's independence, while Wall Street stocks edged higher.

Trump said on Monday he was firing Fed Governor Lisa Cook over claims of mortgage borrowing impropriety. Cook said Trump has no authority to fire her, and that she would not resign. Her term was due to end in 2038.

The unprecedented move by Trump could lead to a protracted legal battle that risks resetting norms for the central bank's independence and a president's involvement in monetary policy. Cook's exit from the Fed could speed up Trump's efforts to reshape the Federal Open Market Committee, which sets interest rate policy.

Trump has been pushing the Fed to cut rates to stimulate growth and reduce borrowing costs.

Expectations of a potentially more dovish Fed helped to send shorter-dated U.S. yields lower. But a politically influenced Fed that keeps rates lower than they otherwise might could increase inflation concerns and reduce foreign demand for the debt on credibility fears. Those factors will weigh on longer-dated debt.

"President Trump is undertaking a risky and possibly ineffective battle against the Fed. To get a majority of the FOMC to toe the Trump line would take seven voters, not just two or even four," Brian Jacobsen, chief economist at Annex Wealth Management, wrote.

Trump has regularly threatened to dismiss Fed Chair Jerome Powell, and this month he fired a top Labor Department official after accusing her, without evidence, of manipulating jobs data that had disappointed him. Trump has backed away from that threat as Powell gets closer to the expiration of his term next May.

INFLATION REPORT

The dollar fell against major currencies on the Cook news, and a global stock index was lower as European shares dropped, led by losses in France as political uncertainty deepened in the country. France's CAC 40 .FCHI fell 1.7% as the country's minority government looked increasingly likely to be ousted next month.

U.S. stocks edged higher, with investors awaiting Nvidia's NVDA.O results on Wednesday and a key inflation report later this week.

"The market is very much focused on inflation, the labor market, consumer spending and corporate earnings. That - pun intended - trumps everything," said Oliver Pursche, senior vice president and adviser for Wealthspire Advisors in Westport, Connecticut.

The Dow Jones Industrial Average .DJI rose 3.22 points to 45,285.69, the S&P 500 .SPX climbed 5.71 points, or 0.09%, to 6,445.03 and the Nasdaq Composite .IXIC advanced 30.17 points, or 0.14%, to 21,479.47.

MSCI's gauge of stocks across the globe .MIWD00000PUS fell 2.37 points, or 0.25%, to 950.59.

The pan-European STOXX 600 .STOXX index ended 0.83% lower.

The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.29% to 98.19, with the euro EUR= up 0.27% at $1.1649.
Against the Japanese yen JPY=, the dollar weakened 0.31% to 147.31.

The 2-year note US2YT=RR yield typically moves in step with interest rate expectations. It was last down 4.3 basis points to 3.687%, from 3.73% late on Monday. The benchmark U.S. 10-year note yield US10YT=RR fell 1.7 basis points to 4.258%.

Investors anxiously await Friday's U.S. personal consumption prices reading, considered the Fed's preferred inflation gauge.

Morgan Stanley on Tuesday became the latest brokerage to forecast a U.S. interest rate cut in September, joining global peers after Powell hinted at policy-easing next month in a speech last week.

Oil prices fell more than 2%, while gold rose. U.S. crude CLc1 fell 2.31% to $63.29 a barrel and Brent LCOc1 fell to $67.23 per barrel, down 2.28% on the day. Spot gold XAU= rose 0.57% to $3,385.53 an ounce.