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US STOCKS-Wall St set to fall 1% as rising gas prices keep inflation high

(For a Reuters live blog on U.S., UK and European stock markets, click or type LIVE/ in a news window.)

* Consumer price index rose to 1% in May from 0.3% in April

* Netflix falls after Goldman Sachs downgrades to "sell"

* Futures down: Dow 1.13%, S&P 1.33%, Nasdaq 1.57% (Adds comment, details; updates prices)

By Devik Jain and Mehnaz Yasmin

June 10 (Reuters) - U.S. stocks were set to open sharply lower on Friday as consumer prices rose more than expected in May, dashing hopes that inflation is peaking and fanning worries about more aggressive steps by the Federal Reserve to tame it.

The Labor Department's report showed U.S. consumer price index (CPI) accelerated to 1% in May from 0.3% in April, while on an annual basis it surged 8.6% as gasoline prices hit a record high and the cost of services rose further.

Economists polled by Reuters had forecast the monthly CPI picking up 0.7%.

Core CPI prices, which exclude volatile food and energy products, climbed 6% after a 6.2% rise in April on an annual basis.

"Many hopes for a peak in inflation are now dashed and a peak will just have to wait," said Ryan Detrick, chief market strategist at LPL Financial.

"This does little to give the Fed cover to not be as aggressive and likely suggests it will continue to be quite hawkish to combat the seemingly never ending string of higher inflation."

All eyes are now on the U.S. Federal Reserve's policy meeting next week. Investors fear a tight labor market coupled with persistently high inflation could force the Fed to quicken the pace of its pandemic-era policy support withdrawal.

The U.S central bank was likely to raise its key interest rate by 50 basis points next week and July, with rising chances of a similar move in September, according to a Reuters poll of economists who see no pause in rate rises until next year.

U.S. stocks have sold off sharply this year amid heightened uncertainty around the outlook of Fed's policy moves, a war in Ukraine, prolonged supply-chain snarls and pandemic-related lockdowns in China.

The blue-chip Dow has fallen 11.2% so far this year, while the benchmark S&P 500 index has dropped 15.7% and the tech-heavy Nasdaq has shed 24.9%, respectively.

For the week, all the three major indexes are down between 1.9% and 2.2% as rate-sensitive growth stocks came under pressure from elevated Treasury yields.

"We are at a very interesting spot right here where inflation remains high, there are significant concerns around the growth outlook and at the same time, people are trying to figure out exactly how this will ultimately impact corporate earnings," said Eric Johnston, head of equity derivatives and cross asset at Cantor Fitzgerald.

"We are quite bearish on equities...our view is that earnings estimates are going to get revised lower and so ultimately, stock prices are going to be valued off of the earnings outlook."

At 8:51 a.m. ET, Dow e-minis were down 364 points, or 1.13%, S&P 500 e-minis were down 53.25 points, or 1.33%, and Nasdaq 100 e-minis were down 193.25 points, or 1.57%.

Among stocks, Netflix Inc slid 5.4% in premarket trading after Goldman Sachs downgraded the streaming giant's stock to "sell" from "neutral" due to a possibly weaker macro environment. (Reporting by Devik Jain and Mehnaz Yasmin in Bengaluru; Editing by Arun Koyyur)