By Sinéad Carew

New York (Reuters) - Wall Street equity indexes closed higher on Monday as some investors bet that August data would show easing U.S. inflation while others were encouraged by news that Ukraine had made progress against Russia in a war that has hurt the global economy.

After falling to its lowest level in more than two weeks the dollar pared some losses against a basket of currencies a day ahead of the closely watched U.S. consumer price index data with some investors hoping slowing price increases will slow the Federal Reserve's aggressive interest rate hikes.

U.S. Treasury yields, after falling earlier, were higher in afternoon trading as bond investors were also eagerly awaiting consumer price data.

Consumer price data due on Tuesday is expected to show headline inflation rose 8.1% year-over-year in August versus 8.5% in July. Core CPI, which exclude food and energy prices, is expected to show a rise of 6.1% versus 5.9% in July.

If inflation decreases the market is hoping this "translates into smaller rate hikes" after the September Federal Open Market Committee (FOMC) meeting, said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut.

"Because of that you're seeing a risk-on type of mentality today," Pavlik said. "The market has now fully priced in a 75 basis point hike for September" but it is hoping the next one is 50 basis points, he added.

The Dow Jones Industrial Average rose 229.63 points, or 0.71%, to 32,381.34, the S&P 500 gained 43.05 points, or 1.06%, to 4,110.41 and the Nasdaq Composite added 154.10 points, or 1.27%, to 12,266.41. [.N]

The pan-European STOXX 600 index had closed up 1.76% while MSCI's gauge of stocks across the globe was up 1.26%.

European stocks had risen after Moscow on Saturday abandoned its main bastion in northeastern Ukraine, in a sudden collapse of one of its principal frontlines.

"Markets rallied overnight in a follow-through from Friday. You have stories about Ukraine making progress. Ultimately a move beyond the war is a positive for everybody. Obviously, it still remains to be seen but it's helping fuel the optimism," said Michael O'Rourke, chief market strategist at JonesTrading in Stamford, Connecticut.

In currencies, the euro also reacted positively to Ukraine's advances, extending gains that started last week after a European Central Bank (ECB) rate hike announcement.

The dollar index fell 0.368%, with the euro up 0.75% to $1.0114.

The Japanese yen weakened 0.21% versus the greenback at 142.85 per dollar, while Sterling was last trading at $1.1677, up 0.78% on the day. [FRX/]