CORRECTED-GLOBAL MARKETS-Dollar sinks to 3-year low, stocks hits fresh record amid Fed worries

By Marc Jones and Chibuike Oguh

NEW YORK/LONDON, June 26 (Reuters) - The dollar sank to a more than three-year low even as global shares hit their third record high in three days on Thursday and amid growing market concerns about the Federal Reserve's independence.

The U.S. dollar index .DXY was down nearly 0.5% on the session and more than 10% for the year. If it stays that way in the next few days it will be its biggest fall in the first half of a year since the start of the era of free-floating currencies in the early 1970s.

Wall Street's main indexes were trading higher, with the benchmark S&P 500 and Nasdaq nearing record highs. The Dow Jones Industrial Average .DJI rose 0.74% to 43,302.85, the S&P 500 .SPX rose 0.66% to 6,132.52 and the Nasdaq Composite .IXIC rose 0.73% to 20,118.65.

European shares .STOXX finished up 0.09%. MSCI's gauge of stocks across the globe .MIWD00000PUS rose 0.75% to 908.96, hitting a new record high for the third straight session.

A Wall Street Journal report said President Donald Trump - who has been urging the Fed to cut rates faster - was toying with the idea of selecting Chair Jerome Powell's replacement in the next few months ahead of the end of his term next May.

Powell had just wrapped up two days of testimony to U.S. Congress, where he said the central bank would be careful in considering further rate cuts as it expects Trump's tariffs would cause prices to rise this summer.

Such an appointment by Trump of a shadow Fed chair will likely shake investor confidence in the central bank's independence, which is helping to contribute to the dollar's weakness, said Wasif Latif, chief investment officer at Sarmaya Partners in New Jersey.

"The market recognizes that sooner rather than later, Powell will walk off the stage and the next appointment will likely be somebody that's a little bit softer or dovish or somewhat politically driven," Latif said. "And the market is saying the next chair will likely be more amenable to big cuts than Powell has been and so I think that's part of what's feeding into the dollar weakness and gold is also reflecting that."

Overnight in Asia, Tokyo's Nikkei .N225 jumped 1.65% to its highest level since January, while MSCI's index of Asia-Pacific shares outside Japan .MIAPJ0000PUS finished slightly higher too. .N

The dollar weakened to a decade-low against the Swiss franc CHF=EBS at 0.79855. It was also down 0.73% to 144.195 against the Japanese yen JPY=EBS.

The dollar index .DXY, which measures the U.S. currency against six peers, now sits at its lowest level since March 2022 following its slide this year.

"The striking thing on the dollar trend of the last six weeks is that in almost any market regime the dollar is struggling to appreciate," State Street's Michael Metcalfe said.

"It seems to be in something of structural decline," he added, highlighting State Street data that investors were now the most negative they have been on the dollar - or "underweight" in banking speak - since the COVID pandemic.

Traders are now pricing in a nearly 25% chance of the Fed cutting rates in its end-of-July meeting, compared with 12.5% last week, the CME FedWatch tool showed.

The yield on benchmark U.S. 10-year notes US10YT=RR fell 1.6 basis points to 4.277%.

The two-year U.S. Treasury yield US2YT=TWEB, which typically moves in step with interest rate expectations, was down 2.9 basis points at 3.75%, its lowest level in seven weeks. Germany's equivalent DE2YT=RR which is a benchmark for Europe, 0.4 basis points to 2.569%. GVD/EUR

Oil prices were on track for their second straight day of gains after their sharp slump following the Trump-brokered ceasefire early this week between longtime Middle East foes Israel and Iran. Trump had also announced plans to hold talks with Iran next week to seek a commitment from Tehran on curtailing its nuclear ambitions.

Brent crude futures LCOc1 rose 1.2% to $68.49 a barrel, U.S. West Texas Intermediate crude (WTI) CLc1 gained 1.43% to $65.85. Gold dipped 0.2% to $3,325.54 an ounce. O/R.