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GLOBAL MARKETS-Asia stocks fall as Fed rate cut bets dialed back, Europe to follow

Noah Sin and Hideyuki Sano

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* Asian stocks drop as hopes for large Fed cut fade

* European futures point to lower stock market open

* Apple slumps on downgrade, suppliers in Asia fall

* Markets focus on Fed chair's testimony this week

* Asian stock markets: https://tmsnrt.rs/2zpUAr4

HONG KONG/TOKYO, July 9 (Reuters) - Asian stocks hovered around two-and-a-half week lows on Tuesday as expectations waned for a hefty interest rate cut by the U.S. Federal Reserve later this month, while technology companies retreated on Apple Inc's overnight drop.

European stock markets were set to follow Asia and U.S. markets lower. Futures for the pan-regional Euro Stoxx 50 slid 0.4%, German DAX futures fell 0.7%, and London's FTSE futures were down 0.2% in early trade.

Investors have rushed to scale back Fed rate cut expectations following unexpectedly strong gains in U.S. jobs for June.

The jobs figures "have been a good reminder that the market may have gone well ahead of itself when it comes to the pricing of an eventual monetary easing in the United States," Ipek Ozkardeskaya, senior market analyst at London Capital Group, said in a note on Tuesday.

Japan's Nikkei was the outlier in Asia, inching up 0.1% thanks to gains in a few heavyweights in the index. 1/8nL4N24A1FB 3/8

MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.4% but pared earlier losses, having traded at its lowest level since June 19.

In China, the Shanghai Composite was 0.2% lower and the blue-chip CSI300 was off 0.3%, while Hong Kong's Hang Seng fell 0.7%.

On Wall Street, the S&P 500 lost 0.5% while the Nasdaq Composite dropped 0.8%, led by fall in Apple after a brokerage downgraded the stock to "sell."

Apple's suppliers in Japan, such as Murata Manufacturing and Taiyo Yuden, fell 2% and 4%. In Greater China, suppliers from Hon Hai to AAC Tech lost between 1.4% and 3.1%.

Money market futures are still fully pricing in a 25 basis point (bps) cut at the Fed's next policy meeting on July 30-31, but have almost priced out a larger 50 bps move.

"The headline payrolls figures was pretty strong but wages were tepid, so on the whole a 25 basis-point cut would be justified as an pre-emptive move and I think the current market pricing is fair," said Naoya Oshikubo, senior economist at Sumitomo Mitsui Trust Asset Management.

Global equities will likely remain under pressure after last month's outperformance, Pictet Wealth Management said in a memo on Tuesday.

"After a strong rally in June that more than erased the May drawdown, valuations look demanding, underpinning our underweight stance," the firm said. "We expect (emerging market) equities to perform sideways in the coming weeks, but with the possibility of rotation to quality cyclicals."

Investors' focus is shifting to Fed Chairman Jerome Powell's testimony before Congress later in the week for clues on monetary policy.

"What the market will be looking for is whether the language is as dovish as previously (at last policy meeting)," said Christy Tan, head of market strategy for Asia at National Australia Bank. "There's been some over-dovishness in what the Fed needs to do in the market."

DOLLAR STRENGTH

In the currency market, fading Fed rate cut expectations helped the dollar.

The euro dropped as low as to 1.1204, its weakest level since June 19.

The dollar changed hands at 108.78 yen, having risen in the previous session to its highest in more than a month.

The dollar index versus a basket of six major currencies was a touch higher at 97.432.

The British pound stood at 1.2485, not far from six-month lows of $1.2481 touched on Friday.

Oil prices were slightly softer as concerns about whether slowing global economic growth would hit oil demand eclipsed tensions over Iran's nuclear program.

Brent crude futures fell 0.2% to $64.01 a barrel. U.S. West Texas Intermediate (WTI) crude futures shed 0.4% to $57.46.

(Additional Reporting by Donny Kwok in HONG KONG; Editing by Shri Navaratnam, Kim Coghill and)