Rate cut hopes send global stocks, gold higher

LONDON (Reuters) - Expectations of another round of aggressive U.S. interest rate cuts later this week boosted stocks and sent gold to historic highs on Tuesday while they kept the dollar near a two-week low.

The Federal Reserve, which cut benchmark U.S. interest rates by 75 basis points in emergency action last week to 3.5 percent, is widely expected to lower the cost of borrowing further on Wednesday, possibly by another 50 basis points.

Easier monetary policy helps risky assets such as stocks but lowers the premium the dollar offers, making it less attractive to hold the U.S. currency. A lower dollar in turn makes it cheaper to buy gold.

Combined with Washington's $150-billion fiscal stimulus plan, investors who expect U.S. financial markets aid packages would re-ignite the economy are tentatively dipping their toes back into risky assets.

"We are bullish but the conviction in that call is lower than we'd like... We are at or near a bottom, clearly trying to find some value out there," said Nick Hodson, head of investments at Lloyds TSB Private Banking.

The FTSEurofirst 300 index .FTEU3 rose 1.3 percent, extending its rebound from last week's two-year lows, while Wall Street was set for a positive start later given higher U.S. stock futures.

The MSCI main world equity index .MIWD00000PUS was up 0.7 percent, having hit its lowest since October 2006 last week.

BEAR FEARS

Despite the MSCI's bounce since last week, the index has fallen around 14 percent since hitting all-time highs in November, raising concerns that world stocks are already in a bearish downward trend.

"It feels like a bear market. If it quacks like a duck and walks like a duck, it probably is a duck. And I've got to say it feels very much like a bear market There's apathy about the place. There's a sense of helplessness and despair," said Edward Menashy, economist and strategist at Charles Stanley.

The dollar was down 0.1 percent against a basket of currencies .DXY, having hit the two-week los on Monday.

Emerging sovereign spreads 11EMJ widened 2 basis points while emerging stocks .MSCIEF rose 0.8 percent.

The March Bund future was down 27 ticks.

Later in the day, U.S. durable goods and consumer confidence data and Standard & Poor's closely-watched Case Shiller home price index are due.

Gold and platinum hit record highs for a third straight day, while silver rallied to its highest in 27 years. Lower U.S. interest rates reduce the opportunity cost of holding precious metals.

U.S. light crude oil rose half a percent to $91.47 a barrel, supported by expectations that Fed rate cuts would underpin demand for oil.

(Additional reporting by Michael Taylor and Rebekah Curtis)