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

Updated at 1550 GMT

By Purvi Agarwal, Roshan Abraham and Pranav Kashyap

July 11 (Reuters) -UK stocks closed higher on Thursday, propelled by utilities shares, while an unexpected fall in U.S. inflation cemented bets of an interest rate cut from the Federal Reserve this year.

The blue-chip FTSE 100 index .FTSE was up 0.4% for the second straight session. The mid-cap FTSE 250 index .FTMC breached the 21,000 mark for the first time in more than two years and closed 1.3% higher, at an over two-year peak.

The utilities sector index .FTNMX651020 rose 2.1% after regulator Ofwat told water companies to fix crumbling infrastructure without raising the bill as much as they wanted.

Traders shrugged off the Ofwat bill announcement after the regulator described business plans by some water companies as "outstanding".

Pennon PNN.L led gains in the sector, climbing 9.7% to the top of the FTSE 250 index, after the water company named Laura Flowerdew as its new CFO.

Meanwhile, U.S. consumer prices data showed a surprise drop in June, reinforcing views that the disinflation trend was on track and potentially drawing the Fed a step closer to cutting interest rates this year.

"Investors are looking at the UK with the new pair of eyes and a bit more confidence...," said Julien Lafargue, Chief Market Strategist at Barclays Private Bank.

"In the U.S. or eurozone - the discussion over the next few months will be revolving around politics - this is not part of the conversation in UK anymore - is one of the reason we see investor interest."

The probability of a September rate cut by the Fed rose to 84% following the CPI data on Thursday, versus a 70% chance a day earlier, according to CME's FedWatch tool.

UK data showed earlier in the day the economy grew more rapidly than expected in May, likely lowering the chances of an August rate cut by the Bank of England.

"The GDP release didn't have any meaningful impact - unless there is a steep surprise, markets tend to look past this," Lafargue added.

Bucking the upbeat trend, IT software services provider Bytes Technology BYIT.L dropped 6.1% to the bottom of the mid-cap index, on weaker profit growth.

Meanwhile, Britain's market watchdog initiated the biggest rules overhaul in 30 years for companies listing on the London Stock Exchange, aiming to catch up with New York and the European Union post-Brexit.

Reporting by Purvi Agarwal, Pranav Kashyap and Roshan Abraham in Bengaluru; Editing by Rashmi Aich and Emelia Sithole-Matarise

 For related prices, Reuters users may click on - * UK stock report .L FTSE index: 0#.FTS6 techMARK 100 index: .FTT1X FTSE futures: 0#FFI: Gilt futures: 0#FLG: Smallcap index: .FTSC FTSE 250 index: .FTMC FTSE 350 index: .FTLC Market digest: .AD.L Top 10 by vol: .AV.L Top price gainers: .NG.L Top % gainers: .PG.L Top price losers: .NL.L Top % losers: .PL.L * For related news, click on - * UK hot stocks: HOT and GB Wall Street: .N Gilts report: GB/ Euro bond report GVD/EUR Pan European stock report: .EU Tokyo stocks: .T HK stocks: .HK Sterling report: GBP/ Dollar report: USD/ * For company prices, click on - * Company directory: UKEQ By sector: FTAX * For pan-European market data, click on - * European Equities speed guide................ EUR/EQUITY FTSE Eurotop 300 index........................... .FTEU3 DJ STOXX index................................... .STOXX Top 10 STOXX sectors........................ .PGL.STOXXS Top 10 EUROSTOXX sectors................... .PGL.STOXXES Top 10 Eurotop 300 sectors.................. .PGL.FTEU3S Top 25 European pct gainers.................... .PG.PEUR Top 25 European pct losers..................... .PL.PEUR