GLOBAL MARKETS-Stocks falls on megacap drag, yen stumbles after BOJ announcement

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Trump and Xi strike deal over rare earths and tariffs

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Fed's Powell hints 25 bps cut may be last of 2025

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ECB keeps rates unchanged

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Megacaps Microsoft and Meta decline, impacting global shares

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Dollar strengthens against yen after BOJ policy announcement

(Updates with close of US markets)

By Chuck Mikolajczak

NEW YORK, Oct 30 (Reuters) - Global shares dropped on Thursday and were set for their biggest daily decline in three weeks, weighed down by megacaps Microsoft (MSFT) and Meta, while the dollar rose against the yen on policy updates from the Federal Reserve and Bank of Japan. Markets were digesting comments from Fed Chair Jerome Powell, who dampened expectations that the U.S. central bank will cut interest rates at its December meeting after easing by 25 basis points on Wednesday.

Market reaction was muted after U.S. President Donald Trump said he had struck a deal with President Xi Jinping to trim tariffs on China in exchange for Beijing cracking down on the illicit fentanyl trade, resuming U.S. soybean purchases and keeping rare earths exports flowing, which markets had been anticipating in recent days. On Wall Street, U.S. stocks closed lower, as Meta Platforms (META) , one of the "Magnificent Seven" group of megacap stocks, plummeted 11.3% after it reported quarterly results and forecast larger capital costs after the close on Wednesday. Bloomberg reported on Thursday that the Facebook and Instagram parent was targeting at least $25 billion in a bond sale. Also weighing on equities was a 2.9% decline in Microsoft (MSFT) following its quarterly earnings. Those declines overshadowed a 3.1% climb in Google parent Alphabet as its earnings beat expectations due in part to strong artificial intelligence demand. "We saw there's questions on how much spending on the companies that released yesterday, that's going to pull the index down. It's a big, sizable chunk of the index," said Gene Goldman, chief investment officer at Cetera Investment Management in El Segundo, California.

Goldman said that as the market has rallied strongly since April he has been expecting a pullback, which he sees as a buying opportunity. After the closing bell, fellow heavyweight Amazon (AMZN) surged about 10% following its quarterly results and outlook while Apple (AAPL) was still poised to post its earnings.

Markets are pricing in a 72.8% chance of a 25 basis point cut at the Fed's December meeting, down from more than 90% a week ago, according to CME's FedWatch Tool. The Dow Jones Industrial Average fell 109.88 points, or 0.23%, to 47,522.12, the S&P 500 fell 68.25 points, or 0.99%, to 6,822.34 and the Nasdaq Composite fell 377.33 points, or 1.57%, to 23,581.14. MSCI's gauge of stocks across the globe lost 9.27 points, or 0.91%, to 1,005.15 and was on track for its largest daily percentage drop since October 10, while the pan-European STOXX 600 index closed down 0.1%. The European Central Bank kept interest rates unchanged at 2% for the third meeting in a row and offered no hints about future moves as it enjoys a rare period of low inflation and steady growth, despite trade turbulence.

In currencies, the dollar index, which measures the greenback against a basket of currencies, advanced 0.39% to 99.51, with the euro down 0.27% at $1.1568. Sterling weakened 0.36% to $1.3146. The dollar strengthened 0.87% to 154.04 yen after the Bank of Japan kept interest rates steady. Investors had expected a more hawkish tone from Governor Kazuo Ueda, even as he sent the strongest signal yet that a rate hike was possible as soon as December.

The yield on benchmark U.S. 10-year notes rose 3.1 basis points to 4.089% after jumping 7.5 bps on Wednesday following Powell's comments, its biggest daily climb since July 11.

The 2-year note yield, which typically moves in step with rate expectations for the Fed, advanced 2 basis points to 3.606% after a 9.2 bp increase on Wednesday, its biggest since July 3. U.S. crude settled up 0.15% at $60.64 a barrel and Brent advanced to $65 per barrel, settling up 0.12% on the day as investors gauged the U.S.-China trade deal.

(Reporting by Chuck Mikolajczak; Additional reporting by Pranav Kashyap and Nikhil Sharma in Bengaluru, Amanda Cooper in London and Gregor Stuart Hunter in Singapore; Editing by Ros Russell, Nick Zieminski, Richard Chang and Deepa Babington)