* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* Stocks gain for 3rd straight day on Fed cheer
* Dollar hovers near 7-week lows
* IMF cuts China 2019 growth forecast
* Oil resumes slide
By Ritvik Carvalho
LONDON, June 5 (Reuters) - Global stocks gained for a third straight day on Wednesday, bolstered by investors' growing hopes that the Federal Reserve might cut interest rates this year to boost a slowing global economy, while the dollar languished near seven-week lows.
A flare-up in trade tensions between the United States and China, which busted investors' assumption a deal was on the cards, has hit world stocks and triggered fears of an impending recession.
But recent comments from policymakers have helped stem the tide as top Federal Reserve officials this week began warning that the trade war may force them to respond, prompting investors to price possible interest rate cuts.
Interest rate futures show the U.S. central bank will start cutting rates as soon as next month, with as many as three rate cuts priced by year-end.
Fed Chairman Jerome Powell did not question the market rethink of the U.S. interest rate trajectory on Tuesday.
He dropped his standard reference to the Fed being "patient" in approaching any rate decision and said the central bank was watching fallout from the trade war and would react "as appropriate."
The Fed chairman's comments come a day after St. Louis Federal Reserve President James Bullard said in a speech that a rate cut may be needed "soon".
Stock markets responded positively to Powell's comments, with U.S. stocks registering their biggest one-day gains in five months.
The optimism rolled over into markets on Wednesday, with the MSCI All-Country World Index up 0.4% after the start of European trading, adding further to a 1.4% gain on Tuesday.
"Whilst the markets are giddy on central bank support, the effects could be short-lived," said Jasper Lawler, head of research at London Capital Group.
"Let's not forget the other half of the equation is the escalating trade war on multiple fronts. Today the markets are happy to focus on Fed support, but with the U.S. Commerce Department promising retaliation in the event of China's rare earth's threat, this trade war looks set to get worse before it gets better."
China is willing to meet reasonable demand for rare earths from other countries, but it would be unacceptable that countries using Chinese rare earths to manufacture products would turn around and suppress China, its commerce ministry said last week. China's dominance as a supplier of rare earths could be a vital bargaining chip in the trade war with the U.S.