GLOBAL MARKETS-Asia stocks firm as Fed props up rate cut expectations

* MSCI Asia-Pacific index up 1%, Nikkei gains 1.65%
* Dovish views from Fed's Williams cement rate cut
expectations
* U.S. yields fall, gold hits 6-year high on Fed rate cut
prospect
* Crude bounces after U.S. Navy destroys Iranian drone
* Asian stock markets: https://tmsnrt.rs/2zpUAr4

By Shinichi Saoshiro
TOKYO, July 19 (Reuters) - Asian stocks advanced on Friday
after a top Federal Reserve official cemented expectations of a
U.S. interest rate cut later this month, fuelling appetite for
riskier assets and keeping a cap on the dollar.
New York Fed President John Williams said on Thursday that
policymakers could not wait for economic disaster to hit before
adding stimulus, in a speech read as a strong argument in favour
of quick monetary action. In oil markets, crude surged after the United States said
its navy destroyed an Iranian drone in the Strait of Hormuz, a
major chokepoint for global crude flows, raising concerns about
supply disruptions out of the region.
The comments by Williams made it a virtual certainty the Fed
would cut interest rates by 25 basis points at its July 30-31
policy meeting and also fuelled expectations of an even deeper
50 basis point reduction.
Financial markets quickly reacted, with Fed fund rate
futures 0#FF: at one point pricing in almost 70 percent chance
of a 50 bp cut at the month-end meeting. The odds eased to
around 40 percent after the New York Fed clarified that
Williams' speech was not about immediate policy direction.
Wall Street shares shook off a sluggish start and moved
higher overnight thanks to Williams' dovish comments. .N
The Shanghai Composite Index .SSEC and Hong Kong's Hang
Seng .HSI were both up 1%.
Australian stocks .AXJO added 0.7%, South Korea's KOSPI
.KS11 rose 1% and Japan's Nikkei .N225 advanced 1.65%.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS was up 1%, bouncing back from the previous day's
losses.
Over the week, the index has climbed a modest 1%, as riskier
assets were partly capped by U.S. President Donald Trump's
reiteration of his threat to impose further duties on Chinese
imports. The two sides resumed talks recently to seek an end to
a year-long trade war that has rattled financial markets and
slowed global growth.
"Dovish Fed policy expectations do provide support for the
equity markets, which are set to rebound after suffering losses
the previous day," said Masahiro Ichikawa, senior strategist at
Sumitomo Mitsui DS Asset Management. "But factors such as
U.S.-China trade issues and tensions over Iran are likely to
limit the markets' gains."
The dollar index .DXY against a basket of six major
currencies stood little changed at 96.787 after losing roughly
0.5% overnight to a two-week low of 96.671 in the wake of
comments from the Fed's Williams.
The greenback was up 0.2% at 107.520 yen JPY= , crawling
away from a three-week trough of 107.210 on Thursday after the
New York Fed's clarification of Williams' comments. The currency
had previously lost 0.6% against its Japanese peer.
The euro EUR= was 0.1% lower at $1.1267 after climbing
0.45% the previous day.
U.S. Treasury yields were lower across the board in light of
Williams' dovish views. The 2-year yield US2YT=RR was at
1.7826% after touching a two-week low of 1.7520%. The 10-year
yield US10YT=RR declined to a 10-day trough of 2.023% and was
last at 2.0363%.
In commodities, U.S. crude oil futures CLc1 reversed a
large part of the previous day's deep losses, rising 1.8% to
$56.34 per barrel.
Crude rallied after the reports the U.S. Navy had destroyed
the Iranian drone, clawing back earlier losses during the week.
Oil prices had fallen on Thursday amid expectations that crude
output would rise in the Gulf of Mexico following last week's
hurricane in the region. O/R Spot gold XAU= extended the previous day's rally made on
the prospects of lower U.S. interest rates and brushed a
six-year high of $1,452.60 an ounce, before pulling back a touch
to $1,443.36. Middle East tensions also helped boost safe-haven
gold. GOL/

(Editing by Shri Navaratnam and Sam Holmes)