(Updates prices)

By Koh Gui Qing and Elizabeth Howcroft

NEW YORK/LONDON, Nov 14 (Reuters) - World stocks soared on Tuesday after U.S. inflation data came in cooler than forecast in October, fuelling investor bets that an era of interest rate rises is over and borrowing costs may even soon start to fall.

Data showed U.S. consumer prices were unchanged in October as gasoline prices fell, while underlying inflation showed signs of slowing. Excluding volatile food and energy components, the CPI increased 0.2% as rental housing costs rose. Analysts polled by Reuters had expected a 0.3% gain.

By the end of the session in New York, the MSCI World Equity index had surged 1.9%.

Stocks also rallied across the board on Wall Street. The S&P 500 index leapt 1.9%, the Dow Jones Industrial Average jumped 1.4%, and the Nasdaq Composite Index advanced 2.4%, its best day since April 27.

"You can say goodbye to the rate hiking era," said Brian Jacobsen, chief economist at Annex Wealth Management in Wisconsin. He said investors will now turn to bets on when U.S. Federal Reserve policymakers, led by Chair Jerome Powell, might start to cut rates.

"If the Powell Pause began in July, we'll have to see how long he can hold rates here. In the soft landing of 1994-1995, the pause only last five months."

Powell and other policymakers said before the latest U.S. inflation data that they were still not sure that interest rates were high enough to tame inflation.

The pan-European STOXX 600 also jumped after the benign U.S. inflation report, and was last up 1.3%.

In line with expectations that U.S. rates might have peaked, Treasury yields dropped on Tuesday.

U.S. two-year yields, which reflect interest rate expectations, slid to two-week lows of 4.8318%, the biggest one-day drop since May 4. The benchmark 10-year yield fell to 4.4320%, a low not seen in nearly eight weeks.

Lower yields dragged the U.S. dollar index down 1.47%. A softer dollar boosted the euro 1.7% to $1.08765 .

Dollar weakness gave the yen, which has been stuck near its lowest level in three decades against the dollar, a little reprieve.

The pair hovered around 150.325, with the yen recovering slightly from Monday's 151.92.

"We expect the Bank of Japan to move very, very gradually out of yield curve control and eventually out of negative rate policy, but this is unlikely to happen anytime soon," Pictet Wealth Management's macroeconomics chief Frederik Ducrozet said.

Meanwhile, the pair is more likely to be driven by anything that moves the dollar, Ducrozet added.