Updates at 2:50 p.m. EST/1950 GMT

By Chuck Mikolajczak

NEW YORK, Nov 7 (Reuters) - U.S. stocks were higher on Thursday after the Federal Reserve announced a cut of 25 basis points (bps) in interest rates, extending a sharp rally sparked by Donald Trump's return as U.S. president.

The Fed cut interest rates by a quarter of a percentage point as policymakers took note of a job market that has "generally eased" while inflation continues to move toward the U.S. central bank's 2% target.

Markets had almost fully priced in a 25-basis-point rate cut for the November meeting and will now eye commentary from the central bank for guidance about the path of monetary policy.

Investor expectations that Trump would lower corporate taxes and loosen regulations sparked a surge in each of the three major indexes in the prior session, with both the Dow Industrials and S&P 500 recording their largest one-day percentage jumps in two years.

"In an action-packed week, the Fed didn’t add any drama. Cutting by 25 basis points still keeps the federal funds rate restrictive, but not as restrictive as it was," said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

"Elections have consequences and we could see a marginal improvement in growth relative to their forecasts, but also a marginal increase in inflation relative to their forecasts. That would call for a more gradual pace of rate reductions."

Expectations for continued rate cuts have been dialed back, however, as economic data continues to point to a resilient economy and the potential for higher inflation as a result of likely tariffs and increased government spending under Trump's administration.

Investors are also eying whether Republicans could win control of both houses of Congress, making it easier for Trump's agenda to proceed.

The Dow Jones Industrial Average .DJI rose 1.66 points, or 0.02%, to 43,738.09, the S&P 500 .SPX gained 44.02 points, or 0.74%, to 5,973.06 and the Nasdaq Composite .IXIC gained 285.91 points, or 1.51%, to 19,269.38.

Communications services .SPLRCL led S&P sector gains, buoyed by a jump of more than 10% in Warner Bros Discovery WBD.O after a surprise third-quarter profit.

Financials .SPSY were the weakest of the 11 major S&P sectors, giving back some of the outsized gains in the prior session, as banks .SPXBK declined more than 3% after a surge of nearly 11%. JP Morgan JPM.N shares slumped nearly 5% while Goldman Sachs GS.N fell more than 2% to weigh on the Dow.

Treasury yields, which have surged in recent weeks, retreated after a sharp rise on Wednesday, as the benchmark 10-year yield US10YT=RR eased from a four-month high of 4.479%, but pared declines slightly after the Fed statement and was last at 4.363%.

Data earlier on Thursday showed U.S. weekly jobless claims rose marginally last week, suggesting no material change in labor market conditions.

Advancing issues outnumbered decliners by a 1.75-to-1 ratio on the NYSE and by a 1.23-to-1 ratio on the Nasdaq.

The S&P 500 posted 49 new 52-week highs and 4 new lows while the Nasdaq Composite recorded 177 new highs and 72 new lows.

(Reporting by Chuck Mikolajczak in New YorkAdditional reporting by Lisa Mattackal and Ankika Biswas in BengaluruEditing by Matthew Lewis)

((charles.mikolajczak@tr.com; @ChuckMik;))