* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
* European shares open higher
* MSCI ACWI index up 0.5%, best day in over two weeks
* Crude bounces after Trump says U.S. Navy destroys Iranian drone
* Dollar gains 0.1%, rate cut bets cap gains
By Ritvik Carvalho
LONDON, July 19 (Reuters) - Global stocks rose on Friday as investors firmed up bets on a U.S. interest rate cut at the end of July after a speech by a top Federal Reserve official further cemented expectations for one, fuelling appetite for risky assets and capping the dollar.
European shares opened higher across the board, with the pan-European STOXX 600 index gaining 0.7% in early trade. Britain's FTSE 100 index gained 0.6% and Germany's DAX rose 0.75%.
In oil markets, crude surged after the United States said its navy had destroyed an Iranian drone in the Strait of Hormuz, a major chokepoint for global crude flows, raising concerns about supply disruptions out of the region.
Iran said all its drones had returned safely to base, and there was no sign of a major escalation in the Gulf.
Comments by New York Fed President John Williams on Thursday made it virtually certain, in the markets' view, that the Fed would cut interest rates by at least 25 basis points at its July 30-31 policy meeting and also revived expectations of an even deeper 50 bps reduction.
Financial markets reacted quickly, with Fed fund rate futures at one point pricing in an almost 70% chance of a 50 basis point cut. The odds eased to around 40% after the New York Fed said William's speech had not been about immediate policy direction.
MSCI's All-Country World Index, which tracks shares in 47 countries, was having its best day in over two weeks, up nearly half a percent on the day. It was, however, still on track to break a six-week streak of weekly gains.
E-mini futures for the S&P 500 index were 0.3% higher, indicating a higher opening on Wall Street later in the day.
"Despite a rather lackluster earnings season so far, investors are focusing on the prospect of a considerably easier monetary policy, which is why we see stocks ready to open higher this morning," said Konstantinos Anthis, head of research at ADSS.
MSCI's broadest index of Asia-Pacific shares outside Japan was up 1%, bouncing back from the previous day's losses, while Japan's Nikkei advanced 2%.
Elsewhere in Asia, the Shanghai Composite Index rose 0.8%, Australian stocks added 0.75% and South Korea's KOSPI gained 1.4%.
For the week, the MSCI ex-Japan index climbed a modest 1%, as riskier assets were partly capped by U.S. President Donald Trump's reiteration of his threat to impose further duties on Chinese imports.
The two sides resumed talks recently to seek an end to a year-long trade war that has rattled financial markets and slowed global growth. But most analysts do not expect an agreement any time soon, with some predicting a strong risk of further tariff escalation.
"Although central banks around the world have embarked on policy-easing in a bid to support their respective economies, investors are left to ponder whether the stimulus will be enough to offset the effects from heightened U.S.-China trade tensions," said Han Tan, market analyst at FXTM.
The dollar index against a basket of six major currencies stood about 0.1% higher at 96.875 after losing roughly 0.5% overnight to a two-week low of 96.671 in the wake of the comments from the Fed's Williams.
The euro was 0.15% lower at $1.1259 after climbing 0.45% the previous day.
U.S. Treasury yields were lower across the board. The 2-year yield was at 1.7894% after touching a two-week low of 1.7520%. The 10-year yield declined to a 10-day low of 2.023% and was last at 2.0465%.
In commodities, U.S. crude oil futures reversed a large part of the previous day's deep losses, briefly rising 1.45% to $56.10 per barrel before easing back to $55.81, up 0.9%.
Crude rallied after the reports on the Iranian drone. Oil prices had fallen on Thursday amid expectations that output would rise in the Gulf of Mexico as operations resumed following last week's hurricane.
Spot gold eased 0.5% as investors locked in profits after bullion surpassed $1,450 an ounce for the first time in more than six years on dovish Fed signals and Middle East tension. (Reporting by Ritvik Carvalho; additional reporting by Shinichi Saoshiro in Tokyo; Editing by Kevin Liffey)