GLOBAL MARKETS-Fed's Powell resists pressure for hefty rate cut, sends global stocks down

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* Fed's Powell, Bullard temper July rate cut expectations
* European stocks fall for fourth straight session
* Gold slips more than 1%

By Virginia Furness
LONDON, June 26 (Reuters) - Global stocks fell while the
dollar rose on Wednesday as comments from U.S. Federal Reserve
dampened excitement about an aggressive rate cut as early as
July from the world's most important central bank.
Fed Chairman Jerome Powell and St. Louis Federal Reserve
Bank President James Bullard on Tuesday pushed back on market
expectations and presidential pressure for a significant U.S.
interest rate cut of half a percentage point as soon as its next
meeting.
Powell said the central bank is "insulated from short-term
political pressures". But he said he and his colleagues are
currently grappling with whether uncertainties around U.S.
tariffs, Washington's conflict with trading partners and tame
inflation require a rate cut. The pan-European STOXX 600 index .STOXX fell 0.3% to its
lowest level in a week, while Germany's Dax .GDAXI was down
0.15%. The MSCI world equity index .MIWD00000PUS , which tracks
shares in 47 countries, was down 0.16%, while U.S. futures
indicated a flat to lower open.
The dollar rebounded and gold prices retreated after
Powell's comments which pulled the dollar up from three-month
lows against a basket of other currencies in the previous
session at 95.843 .DXY . It was up 0.1% at 96.273.
Equity markets have rallied this month in anticipation that
Fed policymakers would cut rates, but Powell's remarks cast
doubt on those expectations when he referred to the Fed's
independence.
According to latest data from CME Group's FedWatch program,
federal funds futures implied that traders now see a 27% chance
of the Fed lowering rates by half a percentage point in July,
compared to 42% on Monday.
However, not all see the comments as evidence of a policy
u-turn. Richard Dias, multi asset strategist at Pictet Asset
Management, said the Fed had effectively backed itself into a
corner, making a cut in July or September highly likely.
"They are in a weird dichotomy, so many cuts are priced in
and the market has rallied on this news and the bond market has
rallied so if they don't deliver what they have telegraphed,
their credibility will be impinged," he said, adding that he
expected a cut of 25 basis points.
"They would never do 50 bps, we are not in a recession," he
said.
A modest sell-off in U.S. Treasuries, which often sets the
tone for other major bond markets, failed to have much of a
spill over into the euro zone. Ten-year Treasuries fell to 1.98%
on Tuesday, before rising to above 2% on Wednesday US10YT=RR .
European bond yields remained pinned to all-time lows,
unmoved by the apparent shift in tone from the Fed. Germany's
10-year benchmark bond yield held around -0.32% DE10YT=RR .
And with the seemingly insatiable bid for bonds continuing,
Austria opened books on a 100-year bond, a tap of its existing
September 2117.
Market hopes are also pinned on progress in an ongoing trade
dispute between the United States and China.
The U.S. hopes to re-launch trade talks with Beijing after
Trump and his Chinese counterpart Xi Jinping meet in Japan
during the G20 summit on Saturday but Washington will not accept
any conditions on tariffs, a senior administration official said
on Tuesday. Pictet's Dias said he did not expect an immediate
resolution.
"Everyone is desperate for a deal, but why would they do it
then? It is a lot more than just trade, trade is a red herring,
what matters is technology and I don't know how we are going to
agree on this," he said. "What incentive does Donald Trump have
to do a deal now anyway, it is better to drag it out until
before the election and show a big win."
Gold pulled back from the almost six-year highs hit on
Tuesday amid escalating tensions between the U.S. and Iran,
slipping more than 1% on Wednesday XAU= .
The New Zealand dollar edged higher after the Reserve Bank
of New Zealand (RBNZ) stood pat on monetary policy, keeping
rates at a record low 1.50%. But the kiwi's gains were limited
as the central bank expressed concern towards economic risks at
home and abroad. "Overall, today's announcement provides a strengthened
signal that another cut is coming, most likely soon, unless
there is a marked improvement in the global outlook," wrote
economists at HSBC.
The kiwi NZD=D4 last traded 0.2% higher at $0.6651.
U.S. crude oil futures CLc1 advanced roughly 2% to touch a
four-week high of $59.10 per barrel after data showed a decline
in U.S. crude stocks.