Updates to 4:30 p.m. ET

By Caroline Valetkevitch

NEW YORK, July 25 (Reuters) -World stock indexes mostly fell in choppy trading Thursday, adding to losses after a tech-led selloff in the previous session, while the Japanese yen drifted near flat after reaching a 2 1/2-month high against the U.S. dollar.

U.S. megacap stocks were mostly in positive territory throughout afternoon trading before losing some ground by session's end. Tesla TSLA.O shares were last up 2%, while shares of Nvidia NVDA.O were down 1.7%.

The small-cap Russell 2000 index .RUT rose 1.3%.

"You could surmise there were some dip buyers coming in ... just because of how quickly things moved yesterday," said Chad Oviatt, director of investment management at Huntington Private Bank.

"Small caps are winning this week relative to large caps," he said. "When you get a GDP report that's better than expected, that helps to support the narrative of a potential soft landing."

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, leaving intact expectations of a September interest rate cut from the Federal Reserve.

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.

Much focus remains on earnings, especially reports this week from top U.S. tech-related names. Shares of International Business Machines IBM.N jumped 4.3% on Thursday after it reported upbeat revenue results late Wednesday.

The Dow Jones Industrial Average .DJI rose 81.20 points, or 0.20%, to 39,935.07, the S&P 500 .SPX lost 27.91 points, or 0.51%, to 5,399.22 and the Nasdaq Composite .IXIC lost 160.69 points, or 0.93%, to 17,181.72.

The S&P 500 and Nasdaq on Wednesday suffered their biggest daily percentage declines since late 2022 in the wake of lackluster quarterly reports from Alphabet GOOGL.O and Tesla.

Investors have been assessing what happens next in markets following the retreat in the glitzy megacaps.

MSCI's gauge of stocks across the globe .MIWD00000PUS fell 5.80 points, or 0.72%, to 796.78. The STOXX 600 .STOXX index fell 0.72%.

Investors are looking ahead to next week's Bank of Japan meeting which could see a potential rate hike.

The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, gained 0.01% at 104.39. Against the Japanese yen JPY=EBS, the dollar was near flat at 153.91.

The Japanese yen this week rallied sharply as market participants unwound their long-held bets against the currency. Also, the selloff in global stocks had driven investors toward the yen.

Longer-dated U.S. Treasury yields eased as the recent fall in equities helped fuel a safe-haven bid for bonds, while the solid reading on U.S. economic growth failed to shift expectations for a Fed rate.

The yield on the benchmark U.S. 10-year Treasury note US10YT=RR fell 2.8 basis points to 4.258%.

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 18.5 basis points after steepening to a negative 11.3, its least inverted since Oct. 23.

Oil prices edged higher after the strong U.S. economic data boosted demand expectations.

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

Additional reporting by Marc Jones in London; Editing by Angus MacSwan, Mark Potter, William Maclean, Diane Craft and Daniel Wallis

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