(Reuters) -An April inflation reading on Wednesday that was more benign than expected disrupted the modest momentum that had been building for an 11th straight U.S. interest rate hike in June.

Futures tied to the Federal Reserve's policy rate rose after the Labor Department report, and now reflect less than a 10% chance that the U.S. central bank will raise its benchmark overnight interest rate from the current 5.00%-5.25% range at the June 13-14 meeting, with the bulk of bets on a pause. Traders earlier on Wednesday had priced in as much as a 25% chance of a rate hike next month.

The Consumer Price Index (CPI) rose 4.9% last month from a year earlier, after advancing 5.0% on a year-on-year basis in March. That's still far above the U.S. central bank's 2% target, but it was a touch less hot than the 5% economists had expected.

And importantly, inflation in core services excluding housing - a key metric for Fed Chair Jerome Powell because of its outsized contribution to overall inflation - eased from the prior month, according to estimates from several economists.

"We continue to see the data and financial conditions firmly supporting a pause in June," Morgan Stanley economists wrote. Powell and other Fed policymakers have said they are watching credit conditions especially closely, as a drop in bank lending could slow the economy faster than the Fed rate hikes alone would do.

Still, Wednesday's data is far from the final word for Fed policymakers, who have another month of data to parse before making their next interest rate decision.

Meanwhile, traders of interest-rate futures piled further into bets that the Fed will start cutting rates in September, with the policy rate seen ending the year in the 4.25%-4.50% range.

(Reporting by Ann Saphir; Editing by Andrew Heavens and Paul Simao)