* TSX up 0.6%

* U.S. consumer prices unexpectedly fall 0.1%

* Canadian yield falls 10 basis points

* MTY Foods shares rise after higher Q2 profit

July 11 (Reuters) - Canada's main stock index hit its highest level in more than a month on Thursday as cooler-than-expected U.S. inflation data raised hopes that the Federal Reserve would start its long-awaited easing cycle in September.

At 10:36 a.m. ET (1436 GMT), the S&P/TSX composite index was up 143.68 points, or 0.64%, at 22,493.91.

The U.S. consumer prices surprisingly fell 0.1% in June, following which the market's expectations for a rate cut in September climbed to a 90.8% chance from 68.5%.

This comes after Federal Reserve Chair Jerome Powell noted in his testimony on Tuesday that inflation was coming down and the economy was no longer overheated.

"I don't think they could have expected much better than this, but whether or not they're going to cut is going to depend on some other factors between now and then coming into effect," said Michael Sprung, president at Sprung Investment Management.

Back home, the yield on the Canadian 10-year benchmark fell 10 basis points after the inflation report, mirroring its U.S. counterpart.

Real estate stocks led the sectoral gains with a 1.8% jump, hitting its highest since April. Communications services shares rose 1.3%. Energy stocks also jumped 1.3%, in tandem with oil prices.

The materials sector hit its highest in more than a month before paring gains. The only outliers were consumer staples stocks, which slid 0.4%.

Investors will now focus on the U.S. producer price index (PPI) data on Friday, alongside the beginning of the earnings season.

Among individual stocks, MTY Food Group shares rose 9.5% to top the Toronto Stock Exchange after reporting a higher second-quarter profit. (Reporting by Nikhil Sharma in Bengaluru; Editing by Shreya Biswas)