GLOBAL MARKETS-Brent crude rallies on Libya output; stocks flat
* Fed meeting could fuel more dollar selling
* S&P 500 ticks up to new record
NEW YORK, Oct 28 (Reuters) - Brent crude futures rallied 2.5 percent on Monday after Libya's oil exports dropped, while stocks were little changed near record highs on expectations the Federal Reserve will keep its loose monetary policy in place this week.
The U.S. dollar edged up but held close to a nine-month low against a basket of currencies as Fed policy continued to determine the greenback's trend.
The Federal Open Market Committee, the Fed's policy-setting arm, is unlikely to make any shift in policy at its two-day meeting ending on Wednesday as it awaits more evidence of how badly Washington's recent budget battle hurt the U.S. economy.
Most risk assets rose last week as mixed economic data convinced many that the Fed would delay any move to begin trimming its stimulus into next year. With the S&P 500 at a record high, however, traders are shying away from more large bets.
"I would like to say it's all about people waiting for the Fed, but I don't know what they're waiting for because I don't expect any change in Fed policy this week," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.
"My concern with the market at this level is that without signs eliciting some evidence the economy is actually strengthening from the pace we've had, the multiple expansion doesn't seem rational."
The Dow Jones industrial average fell 1.35 points, or 0.01 percent, to end at 15,568.93, the S&P 500 gained 2.34 points or 0.13 percent, to 1,762.11 and the Nasdaq Composite dropped 3.232 points or 0.08 percent, to 3,940.129.
The S&P 500 closed at a record high.
MSCI's world equity index, which tracks share moves in 45 countries, was up 0.2 percent as it climbed back toward last week's peak, last seen in January 2008.
The FTSEurofirst 300 closed down 0.14 percent and U.S.-dollar denominated Nikkei futures rose 0.7 percent.
OIL RISES ON LIBYA, OTHER MARKETS ON FED WATCH
In the oil market, Brent crude settled up 2.5 percent at $109.61 a barrel, bouncing off a more than two-month low, after a drop in Libyan oil exports revived supply concerns.
Oil production in the OPEC member dropped after new protests over the weekend at its oil fields and ports.
Brent was recently trading up 2.4 percent at $109.46 a barrel and U.S. crude was up 0.8 percent at $98.58.
The likelihood that Fed cash will keep flowing into the financial system for a while supported gold and capped gains on the U.S. dollar.
The dollar index was up 0.2 percent at 79.344, not far from a near nine-month low of 78.998 touched on Friday. The euro dipped to $1.3786, having touched a high of $1.3832 late last week.
The longer the Fed keeps its policy loose, the longer U.S. yields will stay low, making the dollar less attractive.
Spot gold was little changed at $1,352.46 an ounce after hitting a five-week high of $1,356.50. Copper ticked less than 0.1 percent higher to $7,190 a ton.
U.S. Treasuries prices were slightly lower as investors made room for this week's $96 billion in longer-dated government debt supply, with yields hovering near three-month lows.
Bond prices pared an initial decline after a surprisingly weak reading on U.S. pending home sales revived some safe-haven bids. Analysts, however, downplayed the market's reception to the disappointing data.
The Treasury kicked off the week's supply with the sale of $32 billion in two-year notes at a high yield of 0.323 percent, with the highest bid-to-cover ratio in six months.
Benchmark 10-year Treasury notes traded down 6/32 in price to yield 2.5533 percent. The 10-year yield touched a three-month low of 2.471 percent last week in the wake of weak September jobs figures.