Updates with closing US market levels

By Caroline Valetkevitch

NEW YORK, Aug 26 (Reuters) - U.S. Treasury yields and the dollar eased on Tuesday as President Donald Trump's move to fire a central bank governor raised concerns about the bank's independence, while Wall Street stocks ended higher ahead of results from Nvidia on Wednesday.

Trump said on Monday he was firing Federal Reserve Governor Lisa Cook over claims of mortgage borrowing impropriety. Cook said Trump had no authority to fire her and she would not resign. Her term is 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 yields lower, while the yield curve steepened as the long end showed a more modest drop. Market participants said long-dated yields were likely to feel more upward pressure from political influence over the Fed, since a subsequent lowering of interest rates could increase worries about inflation, while foreign demand could be hit by fears over the Fed's credibility.

Despite remaining inflation pressures, traders have been pricing in a 25-basis-point interest rate cut for the Fed's September policy meeting, encouraged by dovish signals from Fed Chair Jerome Powell, data pointing to labor market weakness and a shakeup at the central bank.

"On Friday, we had a major catalyst, which was a green light from the Fed to begin cutting rates. The market was waiting for that for a long time. Now the question becomes how much will they cut and how fast will they cut," said Adam Sarhan, chief executive of 50 Park Investments in New York.

The dollar fell against major currencies in the wake of the Cook news.

"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 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 the threat against Powell as he gets closer to the expiration of his term next May.

INFLATION REPORT

A global stock index was little changed, while U.S. stocks ended higher. Investors are awaiting Nvidia's NVDA.O results on Wednesday and Friday's reading on U.S. personal consumption prices, considered the Fed's preferred inflation gauge.

"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 135.60 points, or 0.30%, to 45,418.07, the S&P 500 .SPX rose 26.62 points, or 0.41%, to 6,465.94 and the Nasdaq Composite .IXIC rose 94.98 points, or 0.44%, to 21,544.27.

MSCI's gauge of stocks across the globe .MIWD00000PUS fell 0.24 points, or 0.03%, to 952.72.

Nvidia's report is "going to be a big tell to see what risk appetite is for AI (artificial intelligence) stocks but also for the market," Sarhan said.

European shares dropped, led by losses in France where political uncertainty has deepened. France's CAC 40 .FCHI fell more than 1% as the country's minority government looked increasingly likely to be ousted next month.

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 0.27% to 98.21, while the euro EUR= was up 0.03% at $1.1646. Against the Japanese yen JPY=, the dollar weakened 0.05% to 147.33.

The 2-year note US2YT=RR yield typically moves in step with interest rate expectations. It was last down 4.9 basis points on the day at 3.681%. The yield on benchmark U.S. 10-year notes US10YT=RR fell 1.7 basis points to 4.258%.

Oil prices fell more than 2%, while gold rose. Brent crude LCOc1 was down $1.58, or 2.3%, at $67.22 a barrel, a day after hitting its highest price since early August. West Texas Intermediate $(WTI)$ crude CLc1 lost $1.55, or about 2.4%, to $63.25. Spot gold XAU= rose 0.8% to $3,393.30 an ounce.

(Reporting by Caroline Valetkevitch; Additional reporting by Karen Brettell in New York and Dhara Ranasinghe in London, Rocky Swift and Kevin Buckland in Tokyo; Editing by Helen Popper, Alison Williams, Richard Chang and Edmund Klamann)

((caroline.valetkevitch@thomsonreuters.com))