RPT-GLOBAL MARKETS-Dollar plunges, oil surges; rate cut expected

(Repeats to add byline)

* Dollar slides, on track to biggest plunge in 13 years

* Oil surges more than 8 pct on weak dollar, inventories

* Global stocks rally in anticipation of Fed rate cut

* Commodity prices surge as dollar falls

By Herbert Lash

NEW YORK, Oct 29 (Reuters) - The U.S. dollar plunged on Wednesday as it headed toward its biggest one-day decline against major currencies in 13 years, driving up the price of oil more than 9 percent and sending other commodities sharply higher.

A rally in global stock markets after Wall Street's huge gains on Tuesday helped ease risk aversion and led investors to pare their dollar holdings. Expectations that the U.S. Federal Reserve will cut interest rates by at least a half percentage point later in the day also helped drive up stocks and pressure the dollar.

Leading European stock indexes closed up about 7 percent, led by banks and commodity stocks, following a 7.7 percent rise in Japanese stocks.

The yen rallied, retracing steep losses a day earlier, as global recession fears persisted despite firmer sentiment in equity markets around the world.

Oil surged to above $68 a barrel as a weaker dollar and weekly U.S. government fuel inventory data showed crude stocks rose less than expected last week and gasoline supplies fell unexpectedly.

Commodity prices soared on the weaker dollar. Copper surged nearly 8 percent at one point, lifting other industrial metals, while gold jumped nearly 4 percent in a rally that boosted silver nearly 10 percent.

U.S. equity markets struggled to rally after the Dow surged almost 11 percent on Tuesday in its second-biggest point gain on record. But reassuring news about merger talks between troubled automakers General Motors GM.N and Chrysler, and optimism the Fed will slash interest rates lifted U.S. stocks at midday.

The Fed is due to announce its rate decision at around 2:15 p.m. (1815 GMT), at the close of its two-day policy meeting.

On the automaker front, according to sources familiar with the matter, major issues have been resolved in GM talks with private equity firm Cerberus Capital, owner of Chrysler. GM shares jumped nearly 9 percent to $6.81 on the New York Stock Exchange.

Before 1 p.m., the Dow Jones industrial average .DJI was up 69.69 points, or 0.77 percent, at 9,134.81. The Standard & Poor's 500 Index .SPX was up 6.48 points, or 0.69 percent, at 946.99. The Nasdaq Composite Index .IXIC was up 19.83 points, or 1.20 percent, at 1,669.30.