* Graphic: World FX rates http://tmsnrt.rs/2egbfVh

* Graphic: Global asset performance http://tmsnrt.rs/2yaDPgn

* Currency markets edgy after suspected Japanese yen intervention

LONDON, July 12 (Reuters) - Global stocks drifted on Friday, masking a strong rotation on Wall Street out of big tech stocks and into small companies expected to benefit from rate cuts, while strong signals that Japan had propped up the yen kept currency trading cautious.

MSCI's broad index of world shares was steady, while futures contracts on Wall Street's S&P 500 share index and the tech-heavy Nasdaq 100 implied both indices would flatline in early dealings.

However, futures contracts on the U.S. small-cap Russell 2000 index were 1% higher, building on a strong performance for this domestically-focused index on Thursday as shares in big tech groups like Apple fell.

Traders on Friday were looking ahead to easier financing conditions for companies in the world's biggest economy after data on Thursday showed U.S. inflation had dropped unexpectedly to 3% in June, fueling bets for a September rate cut.

The Federal Reserve has held its main funds rate at a 23-year high of 5.25-5.5% for almost a year, a period where rate cut bets have shifted rapidly on volatile economic data.

Barclays strategist Emmanuel Cau cautioned that most long-term U.S. investment institutions still expected rates to stay high for longer, so the small-cap stock bounce could be short lived.

"Rotation on lower rates into under owned parts of the market, like small caps or bond proxies, seems to be the new pain trade," he said.

Meanwhile, shares in big U.S. banks JPMorgan Chase, Wells Fargo and Citigroup edged lower in pre-market trading after their earnings updates presented a mixed picture of current economic conditions.

WILD YEN

The dollar was steady against peers on Friday and slipped by only 0.2% against its Japanese counterpart to 159.2 yen, following a wild ride for the currency pair in the previous session.

The yen surged by almost 3% on Thursday in a move traders attributed to official intervention to pull the currency up from 38-year lows, as well the drop in U.S. inflation having loaded extra pressure onto the dollar.

While Tokyo did not confirm any move to prop up the flailing yen, the Bank of Japan's daily operations report on Friday suggested between 3.37-3.57 trillion yen ($21.18-22 billion) had been spent on strengthening the currency the day before.

Japan's top currency diplomat Masato Kanda also said on Friday: "Currency interventions should certainly be rare in a floating rate market, but we'll need to respond appropriately to excessive volatility or disorderly moves."

Currency strategists at Bank of America, however, said yen interventions looked unlikely to halt the currency's decline in the long term, noting Japan's trade deficit and its retail investors' tendency to park money abroad for higher expected returns.

STERLING BOUNCE

Elsewhere in markets, Europe's Stoxx share index hit a one-month high and headed for a second consecutive week of gains, helped by upbeat earnings from Sweden's Addtech and Ericsson.

The 10-year U.S. Treasury yield, a benchmark for global borrowing costs, was steady at around 4.21% on Friday after dropping by almost 9 basis points (bps) in the previous session as the price of the debt instrument rose on rate cut hopes.

Sterling rallied 0.4% to $1.296 and headed for its best two-week gain in eight months after comments from Bank of England policymakers and better-than-forecast GDP data led traders to reduce earlier bets for an August rate cut.

The 10-year UK gilt yield rose 6 basis points (bps) to around 4.14% as the price of the government bond fell.

Global oil prices rose to reflect optimism about U.S. rate cuts lifting business activity, with Brent futures gaining 0.6% to $85.93 per barrel and U.S. West Texas Intermediate (WTI) crude 0.8% higher at $83.29 a barrel.

Gold was 0.6% lower at $2,401 an ounce. (Reporting by Naomi Rovnick and Dhara Ranasinghe in London; Editing by Susan Fenton)