GLOBAL MARKETS-Shares higher, dollar struggles on policy debate
* Major stock markets recover despite US fiscal showdown
* U.S. house prices stoke some optimism
* Oil prices down as tensions on Iran ease
NEW YORK, Sept 24 (Reuters) - Stocks rose on Tuesday after days of declines but gains were muted by a lack of clarity on U.S. fiscal and monetary policies, while major currencies held in tight ranges.
A political showdown looms in Washington over budget talks that threaten to shut down the U.S. government on Oct. 1 if a deal cannot be reached.
But after the S&P 500 index dropped for three straight sessions -- its longest losing streak in a month and only the fifth time this year the index has suffered such an extended decline -- investors began to focus on the positive news in economic data.
U.S. home prices rose 0.6 percent in July on a seasonally adjusted basis, the S&P/Case Shiller composite index of 20 metropolitan areas showed on Tuesday. That was a slightly slower pace than forecast, but a separate report from the U.S. Federal Housing Finance Agency showed U.S. home prices rose 1 percent in July from June.
"We are seeing that once again where, after some weakness, the buyers do kind of dip their toes in," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati, Ohio.
The Dow Jones industrial average was up 25.01 points, or 0.16 percent, at 15,426.39. The Standard & Poor's 500 Index was up 4.76 points, or 0.28 percent, at 1,706.60. The Nasdaq Composite Index was up 22.16 points, or 0.59 percent, at 3,787.45.
Facebook shares jumped 1.7 percent to $48.97 after the South China Morning Post reported that the online social media giant and other websites that have been deemed sensitive and blocked by the Chinese government will be accessible in a planned free-trade zone in Shanghai.
The MSCI world equity index was up 0.1 percent. The pan-European FTSEurofirst 300 index closed up 0.2 percent at 1,258.18.
The dollar struggled for gains after a string of comments from Federal Reserve policymakers that suggested the U.S. central bank was wary of jeopardizing a still-fragile economic recovery by scaling back its stimulus too early, though its plan to do so by the end of the year was intact.
New York Fed President William Dudley, in an interview with CNBC broadcast on Tuesday, said that he "certainty wouldn't want to rule out" a reduction in the Fed's bond-buying program later this year, adding that the Fed expected slower economic growth now than it did in June.
Against the Japanese currency, the dollar was up 0.1 percent at 98.91 yen, helping it to a 0.1 percent gain against a basket of currencies. The euro was down 0.1 percent at $1.3484..
The benchmark 10-year U.S. Treasury yields edged down to 2.66 percent, off a near two-year high of 3.0 percent touched earlier this month.
Fed policymakers have been on the offensive this week explaining the reasons behind the central bank's surprise decision last week not to reduce its asset purchases from the current $85 billion monthly pace.
That decision has left investors both encouraged that support for the economy would continue for a while longer but also in some doubt over whether they had overestimated the solidity of the U.S. economic recovery.
"There are conflicting reports on the internal discussion in the Fed," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh. "There's a lot of information and that makes the Fed look confused."
A reading on German business sentiment came in slightly below expectations, though it showed the euro zone's biggest economy on a firm growth path, causing the euro to fall against the dollar. Signs that the European Central Bank stood ready to keep supporting the economy also weighed on the euro.
The Munich-based Ifo think tank said business morale improved slightly in September, reaching the highest level in 17 months, with the key export sectors looking strong.
"The further rise in German Ifo business sentiment confirms that the economy is recovering, but we continue to expect growth to be reasonably sluggish," said Ben May, a European economist at Capital Economics.
The euro held near the weaker levels reached on Monday when European Central Bank President Mario Draghi said he was ready to inject more liquidity into banking markets if necessary to support the economy.
Those remarks were backed up by ECB policymaker Ewald Nowotny on Tuesday, who said any withdrawal of the current level of policy support would have to be implemented extremely carefully.
In commodity markets, gold traded little changed at $1,323.20 an ounce as investors fretted over what the Fed will do next.
The story was much the same in copper futures which fell 1.4 percent to $7,147.50, down from last week's peak of $7,368.00.
Worries that money printing by central banks to buy assets will stoke inflation have helped boost the price of metals like gold, usually seen as an inflation hedge.
An easing in geopolitical tensions was the main factor driving oil markets as signs of a reconciliation between Iran and the West over Iran's nuclear policies raised hopes of greater supplies.
Iran has agreed to new talks on its nuclear program with top diplomats from six world powers, including U.S. Secretary of State John Kerry, raising hopes that Tehran's relations with the United States could thaw.
"Geopolitical tensions are reducing and oil output is rising, so these two factors are driving oil futures to moderate," IHS analyst Victor Shum said.
November U.S. crude was off 43 cents at $103.13 a barrel, down for a fourth day, and Brent crude for November fell 21 cents to $107.93 per barrel.
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