Updates at 0850 GMT

By Harry Robertson

LONDON, July 26 (Reuters) -European stocks and U.S. futures rebounded on Friday as markets stabilised after a week in which global equities have tumbled almost 2%.

Meanwhile, the dollar regained some ground against the yen after a sharp drop this week, as investors awaited U.S. inflation data.

Europe's continent-wide STOXX 600 index .STOXX rose 0.55% and was on track to end the week 0.3% higher after losing 2.7% last week.

Futures for the S&P 500 ESc1 were up 0.74%, after the index .SPX fell for a third day on Thursday to mark a 1.9% drop for the week to date.

Investors were waiting for the release of the U.S. personal consumption expenditures (PCE) index for June, the Federal Reserve's preferred measure of inflation, at 1230 GMT (8.30 a.m. ET).

"I think it could well serve as another reminder that inflation hasn't completely gone away," said Hugh Gimber, global market strategist at JPMorgan Asset Management.

"I think markets have got ahead of themselves in terms of how quickly interest rates will fall over the next six to 12 months."

Equity markets - which had been trading at all time highs - have seen old favorites lose some favour and others picked up over the past two weeks after some cooler U.S. economic data sparked hopes that the Federal Reserve will soon be cutting rates.

Investors have snapped up smaller companies that are more closely tied to the economy and affected by borrowing costs. At the same time, they have ditched popular artificial intelligence plays like Nvidia NVDA.O, helping pull down global stocks .MIWD00000PUS 1.7% this week.

Gimber said the better performance of European stocks this week compared to their U.S peers was part of the rotation out of big tech stocks.

Other stock markets also found a footing on Friday, with Germany's DAX index .GDAXI up 0.21% and Britain's FTSE 100 .FTSE 0.86% higher.

Futures for the tech-laden U.S. Nasdaq index NQcv1 - which has slumped 7% over the past two weeks - were 0.96% higher. Japan's Nikkei .N225 fell 0.53%, while Hong Kong's Hang Seng .HSI rose 0.1%.

YEN UP 2% VS DOLLAR THIS WEEK

The Japanese yen, which has rallied 2% this week, slipped from around a 12-week high as investors took pause ahead of Bank of Japan and Federal Reserve interest rate decisions next Wednesday.

The dollar was last up 0.23% against the yen JPY= at 154.30, but remained set for its biggest weekly fall since April.

Meanwhile, the index tracking the dollar against six peers =USD was little changed at 104.38, while the euro EUR=EBS was also flat at $1.085.

Expectations that the Fed could cut while Japan raises rates in the coming months, as well as suspected intervention earlier this month, have pushed up the yen.

The rally gathered steam this week as investors abandoned long-held bets against the yen, forcing them to buy back the currency.

Data on Thursday that showed the U.S. economy grew more than expected in the second quarter helped calm the yen rally, although did little to change traders' bets on two or three Fed cuts this year, starting in September.

"The way we can describe (this week) is an unwinding of consensus long positions in growth and AI stocks, and an unwinding of consensus long carry positions," said Max Kettner, chief multi-asset strategist at HSBC.

Kettner said strong earnings reports from Amazon AMZN.O, Apple AAPL.O and Microsoft MSFT.O next week could stem the selling in stocks. "Markets could remain a bit nervous until then."

U.S. 10-year Treasury yields US10YT=RR were little changed on Friday at 4.254% and were set to end the week slightly higher. Shorter-dated yields US2YT=RR, which are more sensitive to interest rate expectations, have fallen 7 basis points this week.

Oil prices were also steady with the global benchmark Brent crude price LCOc1 was flat at $82.34 a barrel.

Reporting by Harry Robertson in London; additional reporting by Kevin Buckland in Tokyo; Editing by William Mallard, Kevin Liffey and Edwina Gibbs

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