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Fed's cautious optimism raises hopes for rate cuts

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Dollar edges down, sterling gains

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Oil rises as data shows larger than expected crude draw

(Updates prices at 2:43 p.m ET/ 1843 GMT)

By Sinéad Carew and Lawrence White

NEW YORK/LONDON, July 10 (Reuters) -

A global equities gauge rose to record levels on Wednesday

while U.S. Treasury yields edged down with comments from Federal

Reserve Chair Jerome Powell fuelling hopes for interest rate

cuts as investors awaited key U.S. inflation data.

Powell told lawmakers in Congress that while he was not

yet ready to declare inflation beaten, the U.S. remained

on a path back to stable prices

and continued low unemployment and that the Fed was "very

focused on staying on that path."

The U.S. dollar edged lower while the euro rose slightly and

sterling rallied as comments from the Bank of England's chief

economist dampened expectations for an August rate cut.

On Tuesday, Powell had told Congress that since the U.S.

economy was no longer running too hot the central bank has to

weigh risks and would be able to cut rates once inflation makes

more progress.

"Powell's reiterating the message that if inflation

continues to cool the Fed should be ready to move rates. It does

also feel like he's added a bit more emphasis on the labor

market as well," said Mona Mahajan senior investment strategist

at Edward Jones in New York. "It looks like September and

December are back on the table for rate cuts."

Added to Powell's comments, Mahajan said the slight dip

in bond yields appeared to be supporting equities too.

Investors are also waiting for June's Consumer Price

Index report (CPI), due out on Thursday, and the Producer Price

Index (PPI) report, which comes on Friday, and expect the data

to add to optimism that the Fed will be able to cut rates this

year.

Traders are currently pricing in a 46% probability that

the Fed will have cut rates by two notches by the end of

December's meeting and a 70% probability for the first cut in

September, according to CME Group's FedWatch tool.

On

Wall Street

, at 02:43 p.m. the Dow Jones Industrial Average rose

221.87 points, or 0.56%, to 39,513.84, the S&P 500 gained

39.89 points, or 0.72%, to 5,616.87 and the Nasdaq Composite

gained 181.01 points, or 0.98%, to 18,610.30.

MSCI's gauge of stocks across the globe

rose 5.22 points, or 0.64%, to 823.00 while Europe's STOXX 600

index rose 0.91%.

In Treasuries, the yield on benchmark U.S. 10-year notes

fell 1.6 basis points to 4.284%, from 4.3% late on

Tuesday while the 30-year bond yield fell 2 basis

points to 4.4749%.

The 2-year note yield, which typically moves

in step with interest rate expectations, rose 0.3 basis points

to 4.6305%, from 4.628% late on Tuesday.

In

currencies

, the dollar edged lower with the prospect for rate cuts

still in focus as Powell wrapped up his testimony.

The dollar index, which measures the greenback

against a basket of currencies including the yen and the euro,

fell 0.05% at 105.07, with the euro up 0.07% at $1.082.

Against the Japanese yen, the dollar strengthened

0.28% to 161.76. Sterling strengthened 0.44% at $1.2839.

In commodities, oil prices settled higher after data

showed that a jump in U.S. refining activity last week prompted

a bigger draw than expected from gasoline and crude inventories.

U.S. crude settled up 0.85%, or 69 cents at $82.10 a

barrel and Brent settled at $85.08 per barrel, up 0.5%,

or 42 cents on the day.

Gold prices

rose on raised expectations for U.S. interest rate cuts,

while investors waited for Thursday's inflation data with a view

to bolstering those expectations.

Spot gold added 0.33% to $2,371.38 an ounce. U.S.

gold futures gained 0.72% to $2,377.00 an ounce.