World stocks rise, dollar falls before Fed

LONDON (Reuters) - The dollar fell to a three-week low against the euro and Treasuries steadied ahead of a Federal Reserve policy meeting on Tuesday, while stocks held near a two-year peak, supported by optimism over Chinese growth.

Fed officials are expected to assess its latest $600 billion bond-buying program but not signal any shift in its buying intentions, even though a planned extension of tax cuts could provide a boost to the economy.

Monday's news on China's moves on reserve requirements supported world stocks and commodities as expectations rose Beijing is unlikely to aggressively cool down its economy at a time when the rest of the world relies on China's robust growth.

"Markets have been breaking out into a higher range and now consolidating," Bernard McAlinden, investment strategist at NCB Stockbrokers in Dublin, said. "Investors are awaiting for the Fed for clues about the economy." MSCI world equity index and the Thomson Reuters global stock index both rose around a third of a percent. The MSCI index is just below a two-year high set in November.

The FTSEurofirst 300 index was down 0.1 percent.

Emerging stocks added half a percent.

Chinese stocks rose 0.1 percent . A leading official newspaper reported China will probably target a limit of about 7.5 trillion yuan ($1.1 trillion) in new loans next year, an indication that policy could be slightly looser than expected.

U.S. crude oil rose 0.3 percent to $88.88 a barrel.

The bund futures rose 0.2 percent.

U.S. Treasury futures steadied in Asia after a turbulent session on Monday that took the benchmark 10-year bond yield to a six-month high of 3.39 percent.

Treasuries have suffered a sharp sell-off since news of a tax deal between President Barack Obama and Republican lawmakers sparked concerns over a widening federal budget gap while also boosting hopes for U.S. economic growth.

The dollar fell 0.3 percent against a basket of major currencies while the euro rose to a three-week high of $1.3475.

"The dollar is under pressure as Treasury yields, especially in the medium-term zone, have dropped quite significantly ahead of the FOMC meeting," said Gen Kawabe, manager at Chuo Mitsui Trust and Banking.

(Editing by Patrick Graham)