Updates prices at 2.28 pm ET

By Isla Binnie

NEW YORK, Sept 18 (Reuters) -Major stockindexes rose and the dollar dropped on Wednesday as traders digested a chunky interest rate cut from the Federal Reserve, which moved to lower borrowing costs in the world's largest economy for the first time in more than four years.

The U.S. central bank cut the overnight rate by half a percentage point, more than the usual quarter-point adjustment, citing greater confidence that inflation will keep receding to its 2% annual target.

The overnight rate, which guides how much interest banks pay each other and affects rates for consumers, is now 4.75%-5.00%.

The blue-chip Dow Jones Industrial Average .DJI rose 0.36%, to 41,755.91, the benchmark S&P 500 .SPX rose 0.47%, to 5,661.29 and the NasdaqComposite .IXIC rose 0.77%, to 17,764.34.

"The Fed ended the pause with a bang. It's a strong signal that they cut by 50 bps and expect another 50 basis points of cuts this year," said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

Rates had been parked at their highest levels in over two decades since July 2023.

MSCI's index of world stocks.MIWD00000PUS rose to a record high and was last quoted up 0.37% at 831.78.

The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.54% to 100.36.

In the market for U.S. government debt, yields on rate-sensitive 2-year bonds US2YT=RR,fell 2.5 basis points to 3.567%, from 3.592% late on Tuesday.

Meanwhile the yield on the benchmark 10-year notes US10YT=RR rose 1.5 basis points to 3.657%, from 3.642% late on Tuesday.

Reporting by Kevin Buckland in Tokyo and Sruthi Shankar in London; Editing by Angus MacSwan, Christina Fincher, David Evans and Nick Zieminski

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