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50-bp Fed cut back on table after FT, WSJ reports

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Chances of super-sized cut rise to 45% from 14%

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Dollar hits lowest vs yen since Dec 28

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Gold at record, Treasuries bounce

(Updates prices at 1132 GMT)

By Amanda Cooper

LONDON, Sept 13 (Reuters) - The dollar fell on Friday to

its lowest this year against the yen and gold hit a record high

after an overnight upheaval in investor expectations for a

super-sized Federal Reserve interest rate cut next week.

Stocks, Treasury prices and commodities all rallied after

traders raised the chances of a half-point cut from the Fed next

week to 41%, from closer to 14% a day ago, before articles in

the Financial Times and Wall Street Journal each called the

decision "a close call".

Influential former New York Fed President Bill Dudley later

said at a forum in Singapore "there's a strong case for 50".

"I've been firmly in the 25-basis point camp until now. This

is actually making me think they might go 50," City Index market

strategist Fiona Cincotta said.

"It feels like a coin toss now, that is what the market is

showing, given the reactions we're seeing in bonds, the yen, the

U.S. dollar and gold," she said.

The dollar dropped as much as 1.0% to 140.36 yen,

its weakest since last Dec. 28. It was last down 0.74% at

140.755.

The yen has also been supported this week by hawkish

comments from Bank of Japan officials, with policy board member

Naoki Tamura saying on Thursday he was "worried that upside

inflation risk was heightening".

The dollar index, which measures the currency against

the yen and five other major rivals, dropped to a one-week

trough at 101.00.

Benchmark 10-year Treasuries rallied, pushing

yields down 3.2 basis points to 3.648%, while rate-sensitive

two-year yields dropped 5.7 bps to 3.591%.

Commonwealth Bank of Australia strategist Carol Kong says

current pricing for Federal Open Market Committee (FOMC) easing

is too high.

"We continue to favour a 25 bp cut over a 50 bp cut, because

the labour market and the broader economy remains resilient,"

she wrote in a note.

"Current market pricing is aggressive compared to the

average FOMC rate cutting cycle outside of recessions. We, along

with the consensus of U.S. economists, do not expect the U.S.

economy to enter a recession."

GOLD AND OIL CLIMB

Global shares rose for a fifth day, up 0.2%,

thanks to gains in Europe, where the STOXX 600 rallied

0.5%.

The euro rose 0.13% to $1.10863, building on

Thursday's 0.57% advance after European Central Bank President

Christine Lagarde pushed back on prospects of a rate cut in

October, following a widely expected quarter-point reduction on

Thursday.

Gold headed for its strongest weekly gain since

mid-August, up 2.8% to a record high of $2,570 an ounce, driven

by dollar weakness. It was last up 0.3% at $2,566 an ounce.

MSCI's broadest index of Asia-Pacific shares outside Japan

rallied 0.45%.

Japan, mainland China and South Korea were heading into long

weekends, with Tokyo back on Tuesday, China on Wednesday and

South Korea not until Thursday.

U.S. stock futures rose between 0.1-0.2%, following

gains on Thursday for the cash indexes.

Crude oil continued to climb after surging around 2%

overnight, as producers assessed the impact on output after

Hurricane Francine tore through the Gulf of Mexico.

U.S. West Texas Intermediate crude futures rose 1.2%

to $69.79 a barrel, extending Thursday's 2.5% rally. Brent crude

futures rose 1% to $72.70, after a 1.9% jump the

previous day.

(Additional reporting by Kevin Buckland in Tokyo; Editing by

Sam Holmes, Shri Navaratnam, Kim Coghill, Timothy Heritage and

Alex Richardson)