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Sterling flirts with $1.31 as inflation data eyed

* Graphic: sterling and gilt yields http://bit.ly/2dgAXn1

* Graphic: World FX rates in 2017 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv

LONDON, July 18 (Reuters) - Sterling flirted with $1.31 on Tuesday as the dollar hit a 10-month low on doubts over the pace of monetary tightening by the Federal Reserve, though upcoming UK inflation data kept gains in check.

The pound touched $1.3102 in early trade after unsuccessfully trying to clear 1.31 in the last two sessions. It has risen 4 percent in the last month.

"Dollar weakness is giving a lift to other currencies and sterling is benefiting," said Sue Trinh, head of Asian FX strategy at RBC Capital Markets in Hong Kong.

The dollar's index against a basket of six major currencies sank to a 10-month low of 94.706 on worries that U.S. President Donald Trump will fail to deliver on healthcare reforms. From its 14-year peak of 103.82 touched on Jan. 3, it has lost 8.8 percent.

Carry trades have also contributed to dollar declines, driven by recent weak U.S. data at a time of relatively strong readings from emerging markets.

The commodities-linked Australian dollar earlier hit a two-year high after the country's central bank turned more upbeat on the economic outlook after data showing China's economy expanded faster than expected in the second quarter.

Investors were wary of pushing sterling higher before UK June inflation data.

The market is expecting the headline and core inflation rates to remain steady at 2.9 and 2.6 percent, respectively.

"If the estimates are correct then this would be the first time that the headline rate hasnt increased since March, which could ease fears about the squeeze on the U.K. consumer, and may actually boost sterling," Kathleen Brooks, research director at City Index, wrote in a daily note.

A lower than expected reading would be a clearer trigger for more sterling gains, with options data suggesting it might test its September 2016 high of $1.32. (Reporting by Saikat Chatterjee; editing by John Stonestreet)