GLOBAL-MARKETS-US stocks climb, dollar drops after bumper Fed cut

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Fed makes bumper 50 bps cut

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U.S. stock indexes soar

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Dollar, 2-year Treasury yield falls

(Updates prices at 2.28 pm ET)

By Isla Binnie

NEW YORK, Sept 18 (Reuters) -

Major stock indexes rose and the dollar dropped on Wednesday as traders digested a chunky interest rate cut from the Federal Reserve, which moved to lower borrowing costs in the world's largest economy for the first time in more than four years.

The U.S. central bank cut the overnight rate by half a percentage point, more than the usual quarter-point adjustment, citing greater confidence that inflation will keep receding to its 2% annual target.

The overnight rate, which guides how much interest banks pay each other and affects rates for consumers, is now 4.75%-5.00%.

The blue-chip Dow Jones Industrial Average rose 0.36%, to 41,755.91, the benchmark S&P 500 rose 0.47%, to 5,661.29 and the Nasdaq Composite rose 0.77%, to 17,764.34.

"The Fed ended the pause with a bang. It's a strong signal that they cut by 50 bps and expect another 50 basis points of cuts this year," said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

Rates had been parked at their highest levels in over two decades since July 2023.

MSCI's index of world stocks rose to a record high and was last quoted up 0.37% at 831.78.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.54% to 100.36.

In the market for U.S. government debt, yields on rate-sensitive 2-year bonds, fell 2.5 basis points to 3.567%, from 3.592% late on Tuesday.

Meanwhile the yield on the benchmark 10-year notes rose 1.5 basis points to 3.657%, from 3.642% late on Tuesday.

(Reporting by Kevin Buckland in Tokyo and Sruthi Shankar in London; Editing by Angus MacSwan, Christina Fincher, David Evans and Nick Zieminski)