Shares near all-time highs, dollar moves higher

NEW YORK (Reuters) - World share markets hovered just below all-time highs on Tuesday as investors drew encouragement from a rally in China, while Russian stocks enjoyed some respite after three days of heavy selling.

Investors remained cautious, however, reflecting geopolitical jitters and the torrent of U.S. economic news due this week, including a Federal Reserve meeting, GDP data on Wednesday and non-farm payrolls on Friday.

Wall Street was little changed, erasing earlier gains built on news about a spinoff in the telecommunications sphere that sent most stocks in the sector soaring and on better-than-expected results from Dow components Pfizer and Merck.

The Dow Jones industrial average rose 4.28 points or 0.03 percent, to 16,986.87. The S&P 500 lost 1.25 points or 0.06 percent, to 1,977.66 and the Nasdaq Composite added 8.58 points or 0.19 percent, to 4,453.49.

The U.S. dollar hit fresh eight-month highs against the euro and rose slightly against the yen and Swiss franc as traders awaited U.S. economic data and a potentially more hawkish tone from the Fed.

Analysts said the Fed, which is expected to cut its monthly bond-buying program by another $10 billion after its two-day meeting ends Wednesday, may hint at an approaching interest rate hike in light of U.S. labor market growth.

"People are starting to believe there is going to be concrete action from the Fed in terms of raising rates," said Joseph Trevisani, chief market strategist at WorldWideMarkets in Woodcliff Lake, New Jersey.

U.S. Treasuries prices increased, helped by record low yields on German government bonds, and the U.S. yield curve flattened to five-year lows before a sale of new five-year notes.

The debt pared gains, however, after U.S. consumer confidence jumped in July to its highest since October 2007.

Ten-year German government bond yields, the benchmark for euro zone borrowing costs, hit record lows of 1.12 percent amid the prospect of a fresh round of long-term loans to banks from the European Central Bank.

Rouble-traded Russian stocks gained despite fresh fighting in Ukraine and expectations of more EU sanctions. The dollar-denominated RTS index, however, was down slightly to its lowest in nearly three months.

An index of European shares rose 0.3 percent.

"The initial fear (of Russia/West tensions) is not really there any more," said Rabobank economist Philip Marey.

"So now we are looking at the usual suspects: how strong is the euro zone recovery? How strong is the U.S. recovery? And what does it mean for the central banks?"

EU diplomats will try to forge an agreement on the final shape of measures to target capital markets, defense, and sensitive technologies key to some of Russia's major industries.

China shares continued their charge overnight, led by banks after the country's fifth-biggest bank by assets said it was studying a plan to sell stakes to private investors. The CSI300 index of leading Shanghai and Shenzhen A-shares added 0.3 percent, its eighth gain in a row, lifting it to a 2014 high.

That, in turn, pushed MSCI's emerging market index to a three-year high and kept the All World benchmark within reach of this month's all-time peak.

(Reporting by Angela Moon)