By Herbert Lash

NEW YORK (Reuters) -Global stocks rose and the dollar strengthened on Wednesday after a surprise cooling of British inflation bolstered the risk-off mood across markets that anticipates the Federal Reserve next week will hike interest rates for the last time.

The dollar bounced after sentiment was boosted by inflation in the United Kingdom falling more than expected in June to its slowest pace in more than a year at 7.9%. The reading sent the pound sharply lower against other major currencies.

The dollar index rose 0.32% and sterling fell 0.74% to $1.2938.

Gold prices settled off an eight-week peak hit on Tuesday on expectations that the Fed will end its most aggressive rate-hiking in more than four decades when it raises rates for the last time at the end of a two-day policy meeting on July 26.

Stocks on Wall Street rose as investors looked past poor second-quarter earnings from Goldman Sachs to take comfort in strong profits from smaller players in the banking sector.

Citizens Financial and M&T Bank beat Wall Street estimates for second-quarter profit, benefiting from the Fed's rapid rate hikes. The KBW bank index rose 2.61%, its third straight day of gains, up 25% from its May lows after the failure of Silicon Valley Bank sparked a banking crisis.

"Clearly the market is looking through the Fed meeting," said Rhys Williams, chief strategist at Spouting Rock Asset Management in Bryn Mawr, Pennsylvania.

"In the short term, we're in this Goldilocks scenario where good news is good news and bad news is good news," said Williams, adding that if the Fed were to indicate next week that more rates might be in store, it would upend the recent rally.

The pan-European STOXX 600 index closed up 0.26% and MSCI's gauge of stocks across the globe advanced 0.13% to close at a fresh 15-month high after eight straight days of gains.

On Wall Street, the Dow Jones Industrial Average rose 0.31%, the S&P 500 gained 0.24% and the Nasdaq Composite edged up 0.03%.

With U.S. stocks on a seemingly relentless climb - the Dow also posted its eighth straight day of gains - many investors are concerned about the outlook for earnings and valuations.

"Analysts' expectations for earnings are going down. That's the biggest discrepancy in this rosy picture," said Brad Conger, deputy chief investment officer at Hirtle Callaghan & Co in Conshohocken, Pennsylvania.

"You're not seeing the robustness in prices being confirmed by forward expectations and that's the biggest, disconcerting fly in the ointment, if you will," Conger added.