Global shares push higher, bonds steady before Fed

LONDON (Reuters) - World stocks and U.S bond yields extended almost three weeks of steady gains on Tuesday, as markets prepared for the Federal Reserve to formally end six years of aggressive, crisis-driven monetary stimulus.

The Fed kicks off a two-day meeting later with analysts wagering that it will try to soothe the recent market volatility by reinforcing that, while stimulus is being wound up, it could wait quite a while before raising interest rates.

With the euro zone hobbled and China's giant economy struggling to regain pace, the prospect of a world without the crutch of U.S. stimulus has troubled markets, but they finally seem to be getting used to the idea.

European shares <.FTEU3> rose for the fourth time in six days, helped by better-than-expected results from pharmaceutical group Novartis and Swiss bank UBS , as the dollar, commodity markets and U.S. yields also nudged higher.

"In the last few days we have had a reality check," fund management group Hermes' chief economist, Neil Williams, said. "The world is certainly not a happy place at the moment but it hasn't got that much worse in recent weeks.

"I'm expecting the Fed to re-assert its dovishness; they haven't come this far -- including six years of QE (quantitative easing) -- to end it abruptly and leap towards a rate hike."

Markets currently expect the Fed to make the first tentative increase at the end of next year <0#FF:> but with U.S. inflation weak, Europe stumbling and the dollar on the rise, the big question is to what extent it acknowledges risks to the U.S. recovery.

Helping fill the wait for the Fed, markets have a heavy set of economic data to digest including industrial production, home prices and consumer confidence that will give the latest temperature reading of the world's largest economy.

Wall Street futures pointed to early gains of 0.5-0.6 percent, though Twitter shares fell 13.1 percent in premarket trading after it posted a slide in a closely-watched measure of usage. [.N]

In tandem with rising stocks, gold recovered its footing after falling to its lowest in nearly two weeks, while emerging market stocks <.MSCIEF>, which are also seen as vulnerable to reduced stimulus, rose 0.7 percent as hopes of more reforms of state-owned firms helped Chinese stocks <.SSEC> jump 2 percent.

CROWN SLIPS

As European banks continued to benefit from their weekend stress-test results, London's FTSE <.FTSE>, Germany's DAX <.GDAXI> and France's CAC <.FCHI> rose 0.5, 1.5 and 0.5 percent.

In the currency market, the dollar <.DXY> the dollar edged lower after a surprise drop in U.S. durable goods orders and the euro , the pound and benchmark German government bonds traded little changed. [FRX/]

Sweden's crown though slid to a four-year low against the dollar and a four-month trough against the euro after the central bank, the Riksbank, surprised markets with a cut in interest rates to zero.

Like many advanced economies, Sweden is fighting the threat of deflation. Most analysts had forecast the bank would lower rates to 0.1 percent from 0.25 percent, but it went a step further and also forecast an even lower future rate path.

"Reading between the lines, it looks like the Riksbank will keep rates low ... This will weigh on the Swedish crown, with most losses likely to come against the dollar," SEB's chief currency strategist in Stockholm, Carl Hammer, said.

Among commodities, U.S. crude was flat at $81.50 per barrel after dropping as low as $79.44 on Monday, its lowest level since June 2012, after Goldman Sachs cut price forecasts.

Brent crude added 0.2 percent to $86.03 as concerns about weak global demand and ample supply receded and growth-attuned metals -- copper , nickel and aluminum -- continued their recent rebound. [O/R][MET/L]

But the firmer commodity prices did little for Russia's rouble, which fell 0.7 percent to another record low against the dollar despite interventions from the central bank and the chance of further action when it meets on Friday. [EMRG/FRX]

(Editing by Louise Ireland/Ruth Pitchford)

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