Updates to 2:30 p.m. ET

By Caroline Valetkevitch

NEW YORK, July 25 (Reuters) -World stock indexes mostly rose onThursday, with the S&P 500 gainingafter the previous day's megacap-led selloff, while Treasury yields fell as a solid reading on U.S. economic growth failed to alter expectations for an interest rate cut from the Federal Reserve.

The Japanese yen rallied for a fourth straight session against the dollar, as investors unwound their long-running bets against the currency ahead of a Bank of Japan meeting next week.

The U.S. dollar trimmed losses after the U.S. GDP data.

Data showed the U.S. economy grew faster than expected in the second quarter amid solid gains in consumer spending and business investment, but inflation pressures subsided.

The Fed is scheduled to hold its next policy meeting at the end of July. Markets see only a slight chance for a rate cut of at least 25 basis points (bps) at that meeting, but are fully pricing in a September cut, according to CME's FedWatch Tool.

"We're setting up for a Goldilocks-type situation where we feared that the housing sector is really rolling over and that might cause GDP to go to at least zero, but that doesn't seem like it's going to happen and then the Fed will finally cut, late, but still cut," said Jay Hatfield, CEO at Infrastructure Capital Advisors in New York.

The Dow Jones Industrial Average .DJI rose 329.50 points, or 0.83%, to 40,183.37, the S&P 500 .SPX gained 17.77 points, or 0.33%, to 5,445.24 and the Nasdaq Composite .IXIC gained 36.63 points, or 0.21%, to 17,379.04.

Tesla TSLA.O shares were last up 3.5%.Shares of International Business Machines IBM.N jumped about 5% on Thursday after it reported upbeat revenue results late Wednesday. Nvidia NVDA.O shares were near flat.

Stocks fell sharply during Wednesday's session after lackluster quarterly reports from Alphabet GOOGL.O and Tesla, and investors have beenassessing whether a retreat in the glitzy megacaps risks spreading into a multi-pronged selloff.

MSCI's gauge of stocks across the globe .MIWD00000PUS fell 1.40 points, or 0.17%, to 801.18. The STOXX 600 .STOXX index fell 0.72%.

"There are a multitude of drivers at the moment, especially what is going on with the stock markets," senior FX and Macro strategist at BNY in London, Geoff Yu, said.

The yield on the benchmark U.S. 10-year Treasury note US10YT=RR fell 6.5 basis points, on pace for its biggest daily drop in two weeks, to 4.221%.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=RR, seen as an indicator of economic expectations, was at a negative 18.1 basis points after steepening to a negative 13.0, its least inverted since Oct. 23.

The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.05% to 104.33, with the euro EUR= up 0.09% at $1.0849.

Against the Japanese yen JPY=, the dollar strengthened 0.04% at 153.93.

U.S. crude CLc1 rose 69 cents to settle at $78.28 a barrel and Brent LCOc1 rose 66 cents to settle at$82.37. Spot gold XAU= dropped by 1.61% to $2,358.99 an ounce.

Earlier, Chinese blue-chips .CSI300 slid 0.6% to a five-month low. Hong Kong's Hang Seng .HSI plunged 1.7%, finding little support from Beijing's latest easing step.

China's central bank sprang a surprise cut in longer-term interest rates, only stoking further worries about the world's second-largest economy.

Iron ore prices fell almost 1% as China concerns weighed.

Additional reporting by Chuck Mikolajczak in New York and Marc Jones in London and Stella Qiu and Wayne Cole in Sydney; Editing by Angus MacSwan, Mark Potter, William Maclean and Diane Craft

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