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GLOBAL MARKETS-Stocks fall, Treasury yield curve flattens after Fed cuts rates but sends mixed signals

* Gold slips, dollar gains ground

* Oil prices cool after Saudi production pledge (Updates to late afternoon)

By Stephen Culp

NEW YORK, Sept 18 (Reuters) - U.S. stocks extended their losses and the U.S. Treasury yield curve flattened on Wednesday, after the U.S. Federal Reserve cut interest rates, as expected, but gave mixed signals regarding future rate moves.

All three major U.S. stock indexes fell in choppy trading, and the spread between 2-year and 10-year U.S. Treasuries flattened to 3 basis points.

The U.S. central bank, on a 7-3 vote, lowered the Fed funds target rate to a range of 1.75% to 2.00% "in light of the implications of global developments for the economic outlook as well as muted inflation pressures," although it said the U.S. economy continues to grow at a "moderate" pace and the labor market "remains strong."

The rate cut fell short of the more aggressive reduction in borrowing costs that President Donald Trump had demanded.

At a news conference following the policy decision, Fed Chair Jerome Powell said rates were lowered to keep the economy strong and provide insurance against risk, adding that the Fed is closely monitoring economic data, trade and global growth risks.

"The Fed's cut was in line with consensus expectations," said Mark Grant, managing director and chief global strategist at B. Riley FBR, Inc in Fort Lauderdale, Florida. "Their future outlook will certainly not please our president. Chairman Powell's position that we are in a 'mid-cycle adjustment' seems to be what has driven the Fed to their conclusion."

The Dow Jones Industrial Average fell 96.29 points, or 0.36%, to 27,014.51, the S&P 500 lost 14.07 points, or 0.47%, to 2,991.63, and the Nasdaq Composite dropped 55.73 points, or 0.68%, to 8,130.28.

The MSCI world equity index, which tracks shares in 47 countries, fell 0.35%.

The U.S. Treasury yield curve flattened as Powell spoke, with the 2-year gaining ground against the benchmark 10-year.

Benchmark 10-year notes last rose 6/32 in price to yield 1.7944%, from 1.814% late on Tuesday. The 30-year bond last rose 27/32 in price to yield 2.2413%, from 2.28% late on Tuesday.

The dollar strengthened to a near seven-week high against the yen following the Fed's rate cut. The dollar index rose 0.27%, with the euro down 0.36% to $1.1031.

The Japanese yen weakened 0.19% versus the greenback at 108.37 per dollar, while sterling was last trading at $1.2494, down 0.05% on the day.

Oil prices edged lower after Saudi Arabia said it would quickly restore full production following last week's attacks on its facilities and as U.S. crude stockpiles unexpectedly increased.

Tension in the Middle East remained elevated, however. Saudi Arabia on Wednesday displayed remnants of what it described as Iranian drones and cruise missiles used in the attack, calling them "undeniable" evidence of Iranian aggression. Trump ordered a major increase in sanctions on Iran on Wednesday, following repeated U.S. assertions that Iran was behind the attack.

U.S. crude oil futures settled down 2.07% at $58.11 per barrel, while Brent crude oil futures settled at $63.60 per barrel, a 1.47% decline.

Spot gold reversed early gains after the Fed released its statement. Spot gold dropped 0.8% to $1,489.80 an ounce.

Copper lost 0.27% to $5,805.00 a tonne.

Three-month aluminum on the London Metal Exchange % to $1,792.00 a tonne.

(Reporting by Stephen Culp; Additional reporting by Saqib Iqbal Ahmed and Jennifer Ablan Editing by Leslie Adler)

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