* Global stocks rally on rate cut hopes, bargain hunting
* China cuts rates
* Fed expected to cut rates at least 50 bps later
* Dollar weaker as yen recovers
* Euro zone 2/10-year yield curve steepest since March 2005
By Jeremy Gaunt, European Investment Correspondent
LONDON, Oct 29 (Reuters) - World stock markets put in a
second consecutive session of strong bargain-hunting gains on
Wednesday following a huge rally on Wall Street and amid
widespread expectations of a sharp cut in U.S. interest rates.
The mood left the dollar weaker. Wall Street looked set for
a weaker start, but only after the Dow Jones industrial average
<> rose more than 10 percent on Tuesday.
The Fed is widely expected to cut its key rate for the ninth
time since September 2007 later on Wednesday, at least by 50
basis points. That would take rates down to 1.0 percent.
Investors have also been keeping an eye out for coordinated
cuts. China said on Wednesday it was cutting rates and others
are in the same frame of mind with regard to easing given the
deteriorating economic outlook and market turmoil.
If they do not act together, the Bank of Japan will consider
lowering its policy rate at a meeting on Friday, according to
sources familiar with the matter. The Bank of England and the
European Central Bank are both forecast to lower borrowing costs
as well next week.
How much any of these actions will turn around near-term
prospects for major economies is unclear, especially since the
U.S. labour market is forecast to have lost nearly 180,000 jobs
this month.
But stock markets were rallying on the prospect and by a
hefty bout of bargain hunting after recent losses.
MSCI's all-country world index <.MIWD00000PUS> was up 3
percent after gaining 7 percent on Tuesday, led by the 10
percent-plus Dow gains.
The emerging market counterpart <.MSCIEF> was also up 3
percent, but has still lost more than 60 percent so far this
year.
"The Fed doesn't have too many more rate cuts left at its
disposal but there is still scope for them to ease further,"
said Darren Winder, an equity strategist at Cazenove.
"The market should be able to rally on from that. "We are
due a significant rally from the levels we've got down to."
The pan-European FTSEurofirst <> was up 5 percent.
Earlier, Japan's Nikkei average <> climbed 7.7 percent
or 589.98 points to finish at 8,211.90. It has gained 14.6
percent over the past two days, but is down 46 percent for the
year-to-date.
YEN REBOUNDS
The dollar was weaker with the yen climbing after suffering
one of its biggest ever drops against the dollar on Tuesday.
The dollar fell nearly 2 percent from late U.S. trade to
96.84 yen <JPY=> after having surged as high as 99.79 yen on
trading platform EBS, well above the 13-year low of 90.87 yen
struck last week.
On Tuesday the dollar soared more than 6 percent against the
yen -- the biggest one-day gain since 1974 and the
second-biggest since being allowed to trade freely in 1973,
according to data from Reuters Ecowin.
The euro gained three quarters of a percent against the
dollar to $1.2810 <EUR=>.
"We've seen a significant reversal of risk aversion and
those currencies which were sold against the dollar aggressively
in the last month have seen a bit of a reversal," said James
Shugg, an economist at Westpac.
The euro zone 2/10-year government bond yield curve rose to
its steepest level since March 2005 as the short-end outperformed
longer-dated paper on hopes of interest rate cuts.
The spread widened to 124 basis points from around 120 basis
points late on Tuesday with the two-year yield
<EU2YT=RR> hovering above a three-year low at 2.54 percent.
