* Fed keeps stimulus on track
* U.S. GDP tops estimates; euro zone employment improves
* Shares set for stellar July on loose central bank policies
NEW YORK, July 31 (Reuters) - Wall Street stocks rallied while the dollar surrendered some gains on Wednesday after the U.S. Federal Reserve offered no indication that a reduction in the pace of its stimulus program is imminent.
The Fed said it will continue to buy $85 billion in mortgage and Treasury securities per month in its ongoing effort to bolster an economy still challenged by federal budget-tightening and weak growth overseas.
Stocks were up before the release of the Fed’s policy statement, bolstered by data that showed the U.S. economy grew more quickly than expected in the second quarter.
U.S. economic growth, as measured by gross domestic product, accelerated in the second quarter by a 1.7 percent annual rate, the government said. Economists had expected a 1.0 percent gain.
The dollar had risen on the economic data, which drove expectations that the Fed would start to scale back its assets purchases this year, but the Fed announcement axed most of those gains though the U.S. currency remained higher against the yen.
“The Fed will maintain its asset purchases until it sees labor market improvement, and it will maintain an accommodative policy after the purchases end,” said Wayne Kaufman, chief market analyst at Rockwell Securities in New York. “The Fed is saying that even when it tapers it doesn’t want to see interest rates shoot up.”
The Dow Jones industrial average was up 30.33 points, or 0.20 percent, at 15,550.92. The Standard & Poor’s 500 Index was up 6.04 points, or 0.36 percent, at 1,692.00. The Nasdaq Composite Index was up 17.60 points, or 0.49 percent, at 3,634.06.
On Thursday, attention will switch to the European Central Bank and Bank of England policy meetings and data on global manufacturing activity, followed by the U.S. monthly employment report on Friday.
Signs the developed world’s central banks will keep monetary policy loose for a long time to support a tentative economic recovery have put many equity and commodities markets on course for their best month of the year in July.
But strategists have also cautioned that the gains, which could cause the MSCI World Equity index to post its best monthly rise since January 2012, have increased the risk that investors could find reasons over the next few days to cash out.
“At the least what we expect is a lot more volatility and we think the volatility comes with a bit more downside risk than upside potential,” said Wouter Sturkenboom, investment strategist at Russell Investments in London.
In Europe, stock market gains were underpinned by data showing the number of people out of a job in the euro zone fell for the first time in more than two years in June.
Europe’s broad FTSEurofirst 300 index closed up 0.2 percent and had its best month since June 2012.
The dollar was up 0.2 percent against the yen while the euro gained 0.1 percent against the dollar. The dollar index was last little changed.
“Today’s FOMC statement maintains the Fed’s maximum flexibility on quantitative easing,” said Joseph Trevisani, chief market strategist at WorldWideMarkets, Woodcliff Lake in New Jersey. “The end of the program was never going to be a cut and dried announcement in the official policy statement but in the various pronouncements of Chairman Bernanke.”
Prices for U.S. Treasuries pared losses on Wednesday after the U.S. Federal Reserve concluded a two-day meeting with a statement offering no indication that it will soon slow its bond-buying stimulus program.
The benchmark 10-year note fell 9/32 in price to yield 2.641 percent after the statement.
German Bund futures hit session lows on Wednesday after the U.S. data, falling as low 141.82, but were last up 0.2 percent at 142.71 after the Fed statement.
Earlier in Asian trading, MSCI’s Asia-Pacific ex-Japan share index slipped 0.6 percent, bringing its losses so far this year to 5 percent as the region’s markets suffer from fears that China’s economy is slowing rapidly.
A reading on manufacturing activity in China, the world’s second-largest economy, due on Thursday is expected to show a contraction in July for the first time in 10 months, according to a Reuters poll.
A recent run of weak Chinese data, which prompted a pledge from Beijing on Wednesday to keep growth stable in the second half of 2013, has also undermined commodities.
Gold fell 1 percent. But it is still up 6.6 percent so far this month, on track to snap a three-month losing run and mark its biggest monthly rise since January 2012, though it is down 20 percent since the beginning of 2013.
U.S. crude rose 1.6 percent to $104.77 a barrel, extending gains after the Fed statement. It had risen earlier on news that oil stocks at Cushing, Oklahoma, the delivery point for U.S. crude futures, are at their lowest since April 2012, according to data from the U.S. Energy Information Administration..