(Adds oil, gold settlement prices)
* Dollar falls, poised to end flat for the week
* Oil down but near multi-year highs on Iran concerns
By Herbert Lash
NEW YORK, May 11 (Reuters) - The U.S. dollar eased on Friday while an index of world stock markets gained and was poised for its best week since early March, as moderate inflation eased worries about a faster pace of U.S. interest rate hikes and boosted risk appetite.
The dollar fell for a third day against a basket of major currencies as traders booked recent gains, which were tied to widening interest rate gaps in favor of the United States and signs of slower growth elsewhere in the world.
Gold was set for its first weekly gain in four weeks after soft U.S. inflation data on Thursday suggested the Federal Reserve would show caution as it boosts interest rates.
Oil prices slipped but remained near 3-1/2 year highs as the prospect of new U.S. sanctions against Iran tightened the outlook for Middle East supply at a time when global crude production is just keeping pace with rising demand.
U.S. stocks gained as healthcare stocks led a rally even after President Donald Trump blasted drugmakers and healthcare "middlemen" for making prescription drugs unaffordable for Americans. Trump also said the pharmaceutical industry makes an "absolute fortune" at the expense of taxpayers.
The S&P healthcare index rose 1.18 percent as it became clear the U.S. administration had avoided taking aggressive and direct measures to cut drug prices.
The market is responding to exceptionally strong earnings growth and benign inflation, said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management in New York.
The Cboe Volatility Index, a barometer of expected near-term volatility for the S&P 500 that often is referred to as Wall Street's fear gauge, has fallen to levels last seen before the February market correction, Grohowski said.
"Not only has the market returned handsomely, but risk has also taken a breather," he said.
MSCI's gauge of stock markets across the globe gained 0.34 percent.
European shares edged higher, with the pan-regional STOXX 600 index of companies in 17 countries, closed up 0.11 percent for a seventh straight week of gains and the largest string of weekly advances since March 2015.
Shares in Daily Mail and General Trust (DMGT) rose 1.3 percent, having jumped as much as 9.4 percent, after U.S. private equity firm Silver Lake Management Co agreed to buy ZPG , the owner of British property websites Zoopla and PrimeLocation, for $3 billion.
On Wall Street, the Dow Jones Industrial Average rose 37.06 points, or 0.15 percent, to 24,776.59. The S&P 500 lost 0.29 points, or 0.01 percent, to 2,722.78 and the Nasdaq Composite dropped 20.31 points, or 0.27 percent, to 7,384.67.
U.S. plans to reintroduce sanctions against Iran, which pumps about 4 percent of the world's oil, has buoyed crude prices.
U.S. crude fell 66 cents to settle at $70.70 per barrel and Brent settled down 45 cents at $77.12.
The dollar index fell 0.12 percent, with the euro up 0.24 percent to $1.1941. The Japanese yen firmed 0.1 percent versus the greenback at 109.27 per dollar.
Central bankers around the world appear to have become more cautious as concerns over inflation and international trade cloud the global economy.
On Thursday, the Bank of England held rates against recent expectations and New Zealand's Reserve Bank said the official cash rate will remain at 1.75 percent for "some time to come."
This leaves the Fed as the only major central bank committed to rate hikes, but Thursday's moderate inflation reading cast doubt over the pace of these hikes.
Benchmark 10-year notes rose 1/32 in price to yield 2.9677 percent.
U.S. gold futures for June delivery settled down $1.60 at $1,320.70 per ounce. (Reporting by Herbert Lash; Editing by Bernadette Baum and Chizu Nomiyama)