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European stocks and U.S. futures higher after Fed cut

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Dollar clings to gains, analysts see more weakness though

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French bond yields shift above low-rated Italy's

By Marc Jones

LONDON, Sept 18 (Reuters) - Stocks and the dollar nudged

higher on Thursday after the U.S. Federal Reserve's first

interest rate cut of the year, while French politics kept its

markets jittery and the pound held its ground ahead of a Bank of

England rate decision.

The Fed's steady-as-she-goes-message from what had been a

politically charged meeting lifted both the pan-European STOXX

600 and Wall Street futures 0.5%, despite

an initially mixed reaction from U.S. traders on Wednesday.

Asia had rallied overnight too. Chinese stocks hit a 10-year

high as local chipmakers cheered reports of U.S. giant Nvidia

being banned there, while South Korea, Taiwan

and Japan's Nikkei all ended more than 1% higher.

There may have also been an element of relief to see the

dollar nearly 0.2% higher in the currency market following a

plunge to a 3-1/2-year low this week that has left non-U.S.

exporting firms grinding their teeth.

The Fed's closely watched "dot plot" had pointed to two more

rate cuts over its remaining two meetings this year, but only

one additional reduction in 2026.

Fed Chair Jerome Powell had also tempered expectations,

saying the central bank did not need to move quickly from here,

although analysts acknowledge that could easily change.

"We try to look through one or two days' volatility for the

underlying trends," RBC Capital Markets' Richard Cochinos said.

"In this instance, we continue to expect a weaker U.S. dollar,"

pointing to expectations of U.S. rates dropping to 3% next year.

Europe's traders kept the euro broadly steady at

$1.1825 and sterling was an unchanged $1.36 with the

BoE widely anticipated to keep UK rates at 4% later.

Most interest will be on whether the British central bank

slows the 100 billion-pound-a-year pace at which it reduces its

government bond holdings following the recent increase in

volatility in UK bond markets.

A Reuters poll showed economists expect the Monetary Policy

Committee to slow the pace to a median 67.5 billion pounds

($92.2 billion) - a bigger drop than the fall to 72 billion

pounds in the BoE's own poll in August.

The Norwegian crown softened a touch in response to an

already announced 25 basis point rate cut from its central bank

early. It was still close to a near-three high against the

dollar and around two-month high against the euro

.

The Chinese yuan had ticked higher meanwhile after

China's central bank left the borrowing cost of its seven-day

reverse repurchase agreements unchanged overnight, while New

Zealand's dollar tumbled after data showed the country's economy

shrinking far more than expected.

FRENCH FOCUS

The Australian dollar also slipped 0.4% from an almost

one-year high reached on Wednesday, after the release of

weaker-than-expected labour market data for August.

Bond markets were still rallying though with the yield on

benchmark 10-year Treasury notes dropping to 4.06%

and the two-year yield, which rises with traders'

expectations of higher Fed funds rates, at 3.53%.

Germany's 10-year yield, the benchmark for the

euro zone bloc, also fell 0.5 basis points to 2.67%, though

focus was also on France's political strains again as its bond

yields shifted above Italy's.

In the commodity markets, oil prices dipped, with Brent

crude last down 0.2% at $67.87 per barrel, while

safe-haven gold nudged 0.2% higher to $3,665 per ounce.