Global stocks rally to near 3-year high

NEW YORK (Reuters) - World stocks surged toward three-year highs on Tuesday and the U.S. dollar eased against the euro as investors bet the U.S. Federal Reserve will keep its easy monetary policy in place at its meeting this week.

Stocks rallied, with Standard & Poor's 500 Index and the Dow Jones industrial average setting new highs for 2011, helped by solid earnings at Ford Motor Co (F.N), 3M Co (MMM.N) and United Parcel Service (UPS.N).

The euro advanced to a 16-month high against the dollar with little in the way of its advance as long as the Fed still lags other major central banks in raising interest rates.

Investors and traders anticipate no surprises from Fed Chairman Ben Bernanke's news conference at 2:15 p.m. ET on Wednesday after the U.S. central bank releases its latest policy statement and economic forecasts at 12:30 p.m. ET.

The briefing with reporters, at the end of a two-day meeting of the policy-setting Federal Open Market Committee, will be the first in the Fed's 97-year history.

Markets were buoyed by a view that, even as the Fed nears the end of its second phase of bond buying -- a program known as quantitative easing, or QE2 -- it will hold on to its portfolio and its current level of monetary accommodation for some time.

"There will probably not be a QE3, but they will probably not withdraw QE2 either. They are going to leave their balance sheet at this level for some time," said Constance Hunter, chief economist of Aladdin Capital Holdings in Stamford, Connecticut.

MSCI's all-country world stock index .MIWD00000PUS rose as much as 0.67 percent, climbing to a fresh 2011 peak of 352.40 -- a level last seen in July 2008.

U.S. Treasury prices rose on expectations the Fed will keep its near-zero interest rate policy even as it likely signals an end its $600 billion bond program in June.

Solid demand for $35 billion in new two-year debt also buttressed the bond market, pushing yields to fresh one-month lows.

The benchmark 10-year U.S. Treasury note was up 15/32 in price to yield 3.31 percent.

"Investors are unlikely to learn from Bernanke when the Fed will tighten, as it is doubtful that he himself knows," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.

The Fed is expected to say it will complete its $600 billion bond-buying program, which is scheduled to end in June.

If the Fed were to surprise the market and turn more hawkish, it would pose a risk to the sizable amount of dollar shorts in the currency market, analysts said.

The InterContinental Exchange's U.S. dollar index .DXY, which measures the dollar's performance against a basket of major currencies, was down 0.25 percent at 73.802, while the euro was up 0.40 percent at $1.4638.

Both the S&P 500 and the Dow Jones industrial average set new intraday highs for 2011 while climbing to near three-year peaks. The S&P 500 is up 7 percent for the year.

The Dow hit an intraday high at 12,613.16, while the S&P 500 reached an intraday high at 1,349.55.

Investors were cheered by a report that showed consumers felt better about the short-term outlook. The Conference Board, an industry group, said its index of consumer attitudes rose to 65.4 in April from a revised 63.8 in March.

The Dow .DJI closed up 115.49 points, or 0.93 percent, at 12,595.37. The S&P .SPX ended up 11.99 points, or 0.90 percent, at 1,347.24. The Nasdaq Composite Index .IXIC finished up 21.66 points, or 0.77 percent, at 2,847.54.

North Sea Brent ended up in volatile trading, while U.S. crude closed pennies lower as oil investors also watched for any signal of a change in U.S. monetary policy after the FOMC meeting.

Brent crude for June gained 48 cents to settle at $124.14 a barrel, having bounced off a $122.78 low.

U.S. crude for June settled 7 cents lower at $112.21.

Silver posted its largest one-day fall in six weeks after having hit fresh 31-year highs in the previous session, while gold came under pressure from investor uncertainty over the likely course of U.S. monetary policy.

Spot silver fell as much as 4.9 percent to a session low of $44.62 an ounce, after having risen on Monday to within 17 cents of the record $49.48 set in January 1980.

Spot gold hit a record high of $1,518.10 a troy ounce on Monday but slipped to $1,502.85.

"The rally has been strong. It's not surprising to see profit-taking ahead of the FOMC meeting," said Peter Fertig, a consultant at Quantitative Commodity Research.

"Markets expect it will be a dovish statement from the U.S. Fed, but there are worries about them ending (quantitative easing) ahead of time," Fertig said.

European shares rose for the fourth straight session and hit a two-week closing high, boosted by corporate results in both the United States and Europe, including those of Swiss bank UBS (UBSN.VX).

The FTSEurofirst 300 .FTEU3 index of top European shares rose 0.3 percent to end the day at 1,145.96 points, the highest close since April 11.

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(Reporting by Julie Haviv, Edward Krudy and Ellen Freilich in New York and Amanda Cooper, Brian Gorman and Ikuko Kurahone in London; Writing by Herbert Lash; Editing by Jonathan Oatis)