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UPDATE 1-FTSE 100 gains as Fed hints at rate cut, Provident surges

* FTSE 100 up 0.4%, FTSE 250 up 0.6%

* Fed comments bolster sentiment

* Provident surges after NSF drops hostile bid

* Card Factory up on positive results, forecast (Adds news items, analyst comments, graphic, updates share prices)

June 5 (Reuters) - London's main index inched higher on Wednesday as comments from the U.S. central bank seen hinting at a rate cut soothed investor nerves, while mid-cap sub-prime lender Provident rose after rival NSF dropped its hostile bid.

The FTSE 100 rose 0.4% while the mid-cap FTSE 250 had added 0.6% by 0800 GMT.

"Markets are in a state of flux right now, so we are seeing broader swings without a directional shift. I'd be cautious about any rally like this when it seems to be on nothing but fumes," Markets.com analyst Neil Wilson said.

Following up on comments by St Louis colleague James Bullard, U.S. Federal Reserve Chairman Jerome Powell said on Tuesday the bank would react "as appropriate" to the fallout from an intensifying Sino-U.S. trade dispute.

U.S. and Asian stock markets both gained in response to Powell's comments, interpreting then as an indication that the prospect of a rate cut was rising and a shift from the more patient stance the Fed has taken in recent months.

"Not an explicit reference to a cut but enough for this market to latch on to," Wilson said. "Those betting the farm on the Fed cutting rates this year may be left with a small harvest."

Housebuilders, seen as particularly vulnerable to any fallout from Brexit, gained ahead of the upcoming Purchasing Managers Index services survey, which is expected to show a tiny improvement.

Recent surveys in the manufacturing and construction sectors had flagged a weakening momentum in Britain's economy. Barratt and Taylor Wimpey rose nearly 3%.

IAG added 2.1% after JP Morgan initiated coverage of the British Airways owner with an "overweight" rating, citing what it called robust long-term prospects. Rival easyJet rose 2.8%.

News-driven gains helped the FTSE 250 outperform the blue-chip index.

Subprime lender Provident Financial led gainers with a 10% rise, on track for its best day in more than three months, as it succeeded in fending off a hostile 1.3 billion pound bid from smaller rival Non-Standard Finance.

Greeting card retailer Card Factory climbed 3.7% after it posted higher first-quarter sales and guided to marginally positive like-for-like sales for the year.

Kier broke a three-day losing streak and advanced 6.6%. The gains helped steady shares of the construction and services firm, which slumped 40% to its lowest in two decades after a profit warning on Monday.

(Reporting by Shashwat Awasthi and Muvija M in Bengaluru; editing by Patrick Graham and Andrew Heavens)