GLOBAL MARKETS-King dollar rattles currencies, commodities; stocks rise

(Updates with U.S. market action, changes byline, dateline from previous LONDON)

* Euro and sterling fall to 2-1/2 year lows

* Fed cuts rates by 25 basis points, further cuts uncertain

* Banks lead European stocks higher

* Emerging-market stocks on track for 7th session of losses

* Gold and industrial metals melt lower

By Rodrigo Campos

NEW YORK, Aug 1 (Reuters) - The dollar charged to its highest in more than two years on Thursday, trampling almost every market in its way, after the Federal Reserve dampened hopes for a lengthy run of U.S. interest rate cuts.

After the Fed lowered its benchmark rate by 25 basis points, Chairman Jerome Powell said that the central bank's first rate cut in over a decade was "not the beginning of a long series of rate cuts."

Markets were expecting a more dovish stance from the Fed and the dollar’s reaction said it all. The dollar index surged to its highest in more than two years, euro/dollar dropped below $1.11 for the first time since May 2017, and Brexit-hobbled sterling hit 30-month lows just above $1.21 .

Stocks in Asia suffered the most from the dollar's strength, with China's main indexes down 0.8% and Japan's Nikkei up under 0.1%.

By the time stocks opened on Wall Street, the dollar's 0.4% overnight gain had been cut in half and tech shares lead a rally though it didn't fully make up for Wednesday's losses.

"It was always going to be a tough job for the Fed to be as dovish as stock markets hoped," said Chris Beauchamp, chief market analyst at IG, in a note.

The Dow Jones Industrial Average rose 289.74 points, or 1.08%, to 27,154.01, the S&P 500 gained 31.77 points, or 1.07%, to 3,012.15 and the Nasdaq Composite added 129.71 points, or 1.59%, to 8,305.13.

The pan-European STOXX 600 index rose 0.41% with support from bank shares. MSCI's gauge of stocks across the globe gained 0.47%.

Emerging market stocks lost 0.57%, on track for a seventh straight session of losses. After dropping 1.7% in July, the index is up 6.7% so far in 2019.

MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.62% lower, while Japan's Nikkei rose 0.09%.

Story continues

In sovereign debt markets, U.S. Treasury yields fell further after an industry report suggested domestic manufacturing growth slowed to its weakest pace in nearly three years last month.

Earlier, data showed manufacturing activity in the euro zone fell at its steepest rate since late 2012 last month, figures showed.

Benchmark 10-year notes last rose 18/32 in price to yield 1.9606%, from 2.021% late on Wednesday.

The dollar strength notwithstanding, both the euro and the pound were gripped by their own issues. Fears of a no-deal Brexit under Prime Minister Boris Johnson continue to afflict the pound, while the weak data and central bank outlook kept downward pressure on the euro.

"Financial stability is not the same as market stability. In the event of no-deal, no transition Brexit, sterling would likely fall, the risk premiums on UK assets would rise and volatility would spike higher," said Mark Carney, the head of the Bank of England.

The dollar index rose 0.08%, with the euro down 0.13% to $1.106.

Sterling was last trading at $1.2138, down 0.16% on the day.

The Japanese yen strengthened 0.44% versus the greenback at 108.30 per dollar.

The dollar strength and rising U.S. supply sent oil prices sharply lower after a string of gains, while other dollar-denominated commodities also fell. The CRB commodity index fell 1.5%.

U.S. crude fell 3.11% to $56.76 per barrel and Brent was last at $63.42, down 2.51% on the day.

U.S. gold futures fell 0.65% to $1,416.90 an ounce. Copper lost 0.33% to $5,907.50 a tonne.

(Reporting by Rodrigo Campos, additional reporting by Richard Leong and Kate Duguid Editing by Susan Thomas)

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