Updates prices to late U.S. afternoon, adds oil settlement

By Sinéad Carew and Yoruk Bahceli

NEW YORK/LONDON, May 7 (Reuters) - World stocks lost ground while U.S. Treasury yields had mixed reactions and the dollar gained some ground in choppy trading on Wednesday after the Federal Reserve left interest rates unchanged and warned of higher inflation and labor market risks.

The U.S. central bank held rates steady, in line with expectations. It said the economy continued to expand at a solid pace but also cited rising risks of higher inflation and unemployment as policymakers grapple with the impact of U.S. President Donald Trump's tariff policies.

The risks of higher unemployment and higher inflation left the Fed with almost no good short-term options, said Julia Hermann, global market strategist, New York Life Investments.

"Their ability to preemptively cut rates to shore up economic growth is constrained by upside inflation risks, and then, conversely, their ability to preemptively hike rates to reduce inflation risk is constrained by downside risk to growth. So it's a stagflation conundrum," she said.

"We expect to see meaningful easing from the Fed only in the scenario that economic growth figures really disappoint."

U.S. Treasury Secretary Scott Bessent and chief trade negotiator Jamieson Greer are scheduled to meet China's top economic official for talks at the weekend. It could be the first step to agreement after Trump ignited a trade war with the world's No. 2 economy last month.

Bessent said his sense is the meeting in Switzerland "will be about de-escalation," while China sounded more guarded and cited a proverb about actions speaking louder than words.

On Wall Street, at 02:50 p.m. the Dow Jones Industrial Average .DJI rose 154.17 points, or 0.38%, to 40,983.17, the S&P 500 .SPX fell 8.93 points, or 0.16%, to 5,597.98 and the Nasdaq Composite .IXIC fell 109.97 points, or 0.62%, to 17,579.69.

MSCI's gauge of stocks across the globe .MIWD00000PUS fell 1.47 points, or 0.17%, to 840.44. Earlier the pan-European STOXX 600 .STOXX index closed down 0.54%.

In currencies, trading was choppy after the Fed statement and as the central bank chair Jerome Powell took questions from reporters.

The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro,

rose 0.13% to 99.64.

The euro EUR= was down 0.33% at $1.1331. Against the Japanese yen JPY=, the dollar strengthened 0.77% to 143.5.

In U.S. Treasuries, the yield on benchmark U.S. 10-year notes US10YT=RR fell 3.3 basis points to 4.285%, from 4.318% late on Tuesday. The 30-year bond US30YT=RR yield fell 3.2 basis points to 4.7809%.

The 2-year note US2YT=RR yield, which typically moves in step with Fed interest rate policy expectations, rose 0.6 basis points to 3.795%, from 3.789% late on Tuesday.

Oil prices settled lower by roughly $1 per barrel as investors priced in a build in gasoline inventories in the U.S. and looked ahead to the U.S.-China trade talks.

U.S. crude CLc1 futures settled down 1.73%, or $1.02, at $58.07 a barrel while Brent LCOc1 settled at $61.12 per barrel, down 1.66%, or $1.03, on the day.

In precious metals, spot gold XAU= fell 1.36% to $3,382.59 an ounce. U.S. gold futures GCc1 fell 0.73% to $3,386.60 an ounce.

(Reporting by Sinéad Carew, Yoruk Bahceli and Tom Westbrook; Editing by Gareth Jones, David Gregorio and Nia Williams)

((sinead.carew@thomsonreuters.com; +13322191897; sinead.carew@thomsonreuters.com; +13322191897;))