Fed seen holding rates steady in July, start cuts in Sept

(Reuters) -Federal Reserve policymakers are seen leaving their short-term interest-rate target in the 5.25%-5.50% range next week and waiting until September to start a string of quarter-point reductions, after fresh data showed the U.S. economy regained steam last quarter.    Before the data, traders had priced in about a 9% chance of a rate cut when the Fed meets next week, but knocked that down to under 7% after a government report showed the economy grew at a 2.8% pace last quarter, faster than had been expected and double the pace in the first quarter of the year.

The reacceleration "should help temper concerns about the durability of the expansion and quiet chatter that the Federal Reserve needs to cut interest rates in July," wrote Oxford Economics' Ryan Sweet.

Traders of futures contracts tied to the Fed policy rate continue to price in quarter-point interest-rate cuts in each of September, November and December, as they also pared bets on a possible bigger rate cut to start the series. 

Before the data traders had seen about a 21% chance the Fed would have cut rates by more than 25 basis points by its September meeting; that's now down to about 15%.

(Reporting by Ann Saphir; Editing by Alex Richardson and Chizu Nomiyama)