Stocks firm, dollar down as bets build for Fed rate cuts

• European shares dragged down by banks and insurance stocks
• Investors bet on further Fed cuts, no more from ECB
• Gold at new record high, dollar weaker

SINGAPORE/LONDON, Sept 16 (Reuters) - Global shares held near record highs on Tuesday as investors bought U.S. assets on the premise that the Federal Reserve is likely to cut rates, while selling equities in Europe, where borrowing costs look unlikely to fall much further.

MSCI's all-country index .MIWD00000PUS edged up 0.46% to new record highs. The pan-European STOXX 600 .STOXX dropped 0.19%, led by declines in rate-sensitive banks .SX7E and insurers .SXIP, which stand to lose out if the European Central Bank does not cut euro zone rates much more.

"Markets are probably realising that there will be no further cuts by the ECB and this is offsetting expectations of Fed resuming its easing path," said James Rossiter, head of global macro strategy at TD Securities in London.

Money markets are pricing in just a 40% chance of the ECB cutting by 25 bps by June 2026 from around 50% last week.

STOCKS SCALE NEW HEIGHTS

The markets' mood has been buoyant over the past few sessions and stocks scaled new highs on Wall Street on expectations of imminent Fed rate cuts.

S&P 500 futures ESc1 and Nasdaq futures NQc1 were up 0.2%, pointing to another rally at the opening bell, after both indexes scaled all-time highs in Monday's trading session.

Futures already have over 127 bps worth of Fed cuts priced in by July 2026, meaning the bar could be high for policymakers to keep investors optimistic. 0#USDIRPR

"There do seem to be quite a few rate cuts priced in now. On balance, maybe that suggests that the bar for a hawkish surprise is a little lower than that for a dovish one," said Thomas Mathews, head of markets for Asia Pacific at Capital Economics.

"It's likely though that the Fed will stick with its cautious communication approach and not give much away."

With so much focus on the Fed decision, markets hardly reacted to news that the U.S. Senate narrowly confirmed Stephen Miran to the central bank's Board of Governors, and a U.S. appeals court separately declined to let President Donald Trump fire Fed Governor Lisa Cook.

Neither move was seen as likely to shift the needle for the Fed's decision on Wednesday, where a 25-basis-point cut is fully priced in.

The Bank of Canada is also expected to cut rates by a quarter point this week, and the Bank of Japan and the Bank of England are both expected to hold rates steady.

Elsewhere, U.S. and Chinese officials said on Monday they had reached a framework agreement to switch short-video app TikTok to U.S.-controlled ownership which will be confirmed in a Friday call between Trump and Chinese President Xi Jinping.

PRESSURE ON THE DOLLAR

The Fed cut bets have in turn kept pressure on the dollar, which on Tuesday fell to its lowest since July 4 against a basket of currencies =USD.

Euro EUR=EBS traded near its highest since early July, which in turn was the highest since September 2021. It was up 0.4% at $1.1811. Sterling GBP=D3 climbed to its highest in over two months at $1.3641.

U.S. Treasury yields were little changed after falling in the previous session, with the two-year yield US2YT=RR last at 3.5345%. The benchmark 10-year yield US10YT=RR was almost flat at 4.0432%. US/

Oil prices extended their rise from the previous session, as investors assessed the impact of Ukrainian drone attacks on Russian refineries. O/R

Brent crude futures LCOc1 were up 0.5% at $67.79 per barrel. U.S. crude futures CLc1 rose 0.8% to $63.74 a barrel.

Spot gold XAU= reached a new record high just below $3,700 an ounce, supported by a weaker dollar and expectations for a Fed rate cut.