GLOBAL MARKETS-Stocks and dollar drift higher after Fed cut, focus turns to BoE

By Marc Jones

LONDON, Sept 18 (Reuters) - Stocks and the dollar nudged higher on Thursday after the U.S. Federal Reserve's first interest rate cut of the year, while French politics kept its markets jittery and the pound held its ground ahead of a Bank of England rate decision.

The Fed's steady-as-she-goes-message from what had been a politically charged meeting lifted both the pan-European STOXX 600 .STOXX and Wall Street futures ESc1NQc1 0.5%, despite an initially mixed reaction from U.S. traders on Wednesday. .N

Asia had rallied overnight too. Chinese stocks hit a 10-year high as local chipmakers cheered reports of U.S. giant Nvidia being banned there, while South Korea .KS11, Taiwan .TWII and Japan's Nikkei .N225 all ended more than 1% higher.

There may have also been an element of relief to see the dollar nearly 0.2% higher in the currency market following a plunge to a 3-1/2-year low this week that has left non-U.S. exporting firms grinding their teeth.

The Fed's closely watched "dot plot" had pointed to two more rate cuts over its remaining two meetings this year, but only one additional reduction in 2026.

Fed Chair Jerome Powell had also tempered expectations, saying the central bank did not need to move quickly from here, although analysts acknowledge that could easily change.

"We try to look through one or two days' volatility for the underlying trends," RBC Capital Markets' Richard Cochinos said. "In this instance, we continue to expect a weaker U.S. dollar," pointing to expectations of U.S. rates dropping to 3% next year.

Europe's traders kept the euro EUR=EBS broadly steady at $1.1825 and sterling GBP=D3 was an unchanged $1.36 with the BoE widely anticipated to keep UK rates at 4% later.

Most interest will be on whether the British central bank slows the 100 billion-pound-a-year pace at which it reduces its government bond holdings following the recent increase in volatility in UK bond markets.

A Reuters poll showed economists expect the Monetary Policy Committee to slow the pace to a median 67.5 billion pounds ($92.2 billion) - a bigger drop than the fall to 72 billion pounds in the BoE's own poll in August.

The Norwegian crown softened a touch in response to an already announced 25 basis point rate cut from its central bank early. It was still close to a near-three high against the dollar NOK= and around two-month high against the euro EURNOK=.

The Chinese yuan CNH= had ticked higher meanwhile after China's central bank left the borrowing cost of its seven-day reverse repurchase agreements unchanged overnight, while New Zealand's dollar tumbled after data showed the country's economy shrinking far more than expected.

FRENCH FOCUS

The Australian dollar also slipped 0.4% from an almost one-year high reached on Wednesday, after the release of weaker-than-expected labour market data for August.

Bond markets were still rallying though with the yield on benchmark 10-year Treasury notes US10YT=RR dropping to 4.06% and the two-year yield US2YT=RR, which rises with traders' expectations of higher Fed funds rates, at 3.53%.

Germany's 10-year yield DE10YT=RR, the benchmark for the euro zone bloc, also fell 0.5 basis points to 2.67%, though focus was also on France's political strains again as its bond yields shifted above Italy's.

In the commodity markets, oil prices dipped, with Brent crude LCOc1 last down 0.2% at $67.87 per barrel, while safe-haven gold XAU= nudged 0.2% higher to $3,665 per ounce.