GLOBAL-MARKETS-Stocks gain as trade talk hopes rise, rate-cut pressure ebbs

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* Fed's Powell, Bullard temper July rate cut expectations
* European stocks gain after CNBC fuels trade talk optimism
* U.S. futures point to strong open

(Recasts to reflect optimism in global stocks, adds quote)
By Virginia Furness
LONDON, June 26 (Reuters) - European stocks and U.S. equity
futures were higher on Wednesday after a report fuelled optimism
about progress in U.S.-China trade talks, offsetting
disappointment about the size of potential U.S. interest rate
cuts.
Global shares had opened weaker after comments by Federal
Reserve Chairman Jerome Powell and St. Louis Fed President James
Bullard tempered the market's bets on aggressive U.S. rate cuts
next month.
But U.S. futures suggested a higher open for Wall Street and
European equities gained after CNBC reported that U.S. Treasury
Secretary Mnuchin said the U.S.-China trade deal is 90%
complete.
Nasdaq futures were up 0.8% and S&P 500 futures indicated a
0.5% rise. The pan-European STOXX 600 .STOXX was last flat to
slightly higher as some analysts doubted the comments revealed
anything new. The MSCI World Shares index was
.MIWD00000PUS down 0.1%.
"What he (Mnuchin) actually said was that we were 90% of the
way there, which is where we were in April," said Michael Hewson
of CMC Markets. "The big question is have we gone backwards or
forwards from here."
The United States hopes to revive trade talks with China
after U.S. President Donald Trump and Chinese President Xi
Jinping meet in Japan during the G20 summit on Saturday.
However, Washington will not accept any conditions on tariffs, a
senior administration official said on Tuesday. Richard Dias, multi-asset strategist at Pictet Asset
Management, 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," Dias said.
"What incentive does Donald Trump have to do a deal now,
anyway," Dias said. "It is better to drag it out until before
the election and show a big win."
Comments by Fed Chair Powell downplaying market expectations
for a cut of half a percentage point in U.S. interest rates also
undermined stocks.
Powell said the central bank is "insulated from short-term
political pressures". But he said the Fed was grappling with
whether Washington's conflict with trading partners and tame
inflation require a rate cut. The dollar rebounded and gold prices retreated after
Powell's comments. The dollar rebounded from three-month lows
against a basket of other currencies in the previous session at
95.843 .DXY . It was up 0.1% at 96.222.
Equity markets have rallied this month in anticipation of
Fed rate cuts, but Powell's remarks cast doubt on those
expectations.
According to latest data from CME Group's FedWatch program,
federal funds futures implied that traders now see a 27% chance
the Fed will lower rates by half a percentage point in July,
compared with 42% on Monday.
However, not all see the comments as evidence of a policy
u-turn. Pictet's Dias said the Fed had effectively backed itself
into a corner, making a cut in July or September highly likely.
"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.
He expects a cut of 25 basis points. "They would never do 50
bps. We are not in a recession," he said.
A sell-off in U.S. Treasuries, which often sets the tone for
other major bond markets, failed to have much effect on the euro
zone. Ten-year Treasury yields fell to 1.98% on Tuesday, before
rising above 2% on Wednesday US10YT=RR .
European bond yields remained at record lows, unmoved by the
apparent shift in tone from the Fed. Germany's 10-year benchmark
bond yield held around -0.31% 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.
Gold pulled back from the near-six-year highs it reached on
Tuesday amid escalating tensions between the U.S. and Iran,
slipping more than 1% on Wednesday XAU= .
U.S. crude oil futures CLc1 advanced roughly 2% to a
four-week high of $59.10 per barrel after data showed a decline
in U.S. crude stockpiles.