| NEW YORK
NEW YORK The U.S. dollar hit a two-month low on Tuesday amid expectations the Federal Reserve will stick to its easy monetary policy, while the S&P 500 set record highs as shares of Apple (AAPL.O) rose.
The S&P 500 index hit a record intraday high just before the close, and settled at an all-time high as well, extending its rally. The benchmark index also registered a 1.8 percent gain for the month of April.
Apple wowed debt markets with the largest non-bank bond deal in history, offering $17 billion for sale. U.S. Treasury debt prices moved lower after the debt sale, while shares of the tech company shot up 2.9 percent to $442.78, leading gains on both the S&P 500 and Nasdaq.
Wednesday brings the release of the Fed's policy statement. Investors believe the Fed will continue with its bond-buying program in response to recently weaker U.S. economic data. Meanwhile, the European Central Bank is on Thursday expected to cut its benchmark interest rate.
The U.S. dollar was being driven by views on the Fed as investors watch to see if the sluggish economic recovery and slowing inflation might not only end talk of slowing the Fed's bond buying, but also push the Fed into buying more assets.
Weakness in the dollar "is mainly speculation on further Fed quantitative easing policy," said Ulrich Leuchtmann, head of FX research at Commerzbank. "The view that the Fed would scale down QE is coming more and more under question due to poor U.S. data."
Tuesday's report showing an unexpected contraction in business activity in the U.S. Midwest was the latest sign of lackluster growth.
The dollar index .DXY, which measures its value against a basket of six major currencies, hit its lowest since the end of February at 81.598. It was last trading down 0.5 percent at 81.711.
The euro rose as high as $1.3185, the strongest since April 17, according to Reuters data. It last traded up 0.5 percent on the day at $1.3164.
MSCI's world equity index .MIWD00000PUS was up 0.6 percent, while the pan-European FTSEurofirst 300 index .FTEU3 ended down 0.2 percent.
On Wall Street, the Dow Jones industrial average .DJI was up 21.05 points, or 0.14 percent, at 14,839.80. The Standard & Poor's 500 Index .SPX was up 3.96 points, or 0.25 percent, at 1,597.57. The Nasdaq Composite Index .IXIC was up 21.77 points, or 0.66 percent, at 3,328.79.
The disappointing business activity report was offset by an upbeat report on housing, which along with Apple's gains, boosted U.S. stocks.
APPLE COMES TO DEBT MARKET
Just a week after announcing its first drop in quarterly earnings in a decade, Apple offered the massive deal to raise funds for an ambitious program that will return $100 billion in cash to holders of Apple shares.
Sources said investors could barely submit orders fast enough to get in on the deal from Apple, the only major tech company without a single penny of debt on its books.
The $17 billion size easily trumps the previous biggest single deal according to Thomson Reuters/IFR data, a $14.7 billion deal from Abbott Laboratories spin-off AbbVie last November. <ID:L2N0DH197>
The benchmark 10-year U.S. Treasury note was last down 2/32 in price, yielding 1.6734 percent. Prices erased early gains ahead of the Apple deal.
But participants said Treasury yields were likely to stay low and that the yield curve would tend to flatten, narrowing the difference between short- and long-term yields.
"Greater economic weakness out of Europe with higher levels of unemployment and ebbing inflation - that theme is starting to gain greater momentum," said Wilmer Stith, co-portfolio manager of the Wilmington Broad Market Bond Fund in Baltimore, Maryland.
EUROPEAN DATA WEAK; US DATA MIXED
The Institute for Supply Management-Chicago business barometer fell to 49, below the 50 mark that denotes contraction. The news weighed on U.S. stocks in early trading.
But other reports provided more upbeat news on the U.S. economy. The S&P/Case-Shiller index of 20 metropolitan areas showed single-family home prices rose 9.3 percent in February from a year earlier, the fastest pace since May 2006. Data also showed consumer confidence rebounded in April.
Data out of Europe on Tuesday bolstered views the ECB will cut interest rates when it meets on Thursday.
Inflation in the euro zone hit a three-year low and unemployment rose to a record high, the EU statistics office reported. Adding to worries, German retail sales unexpectedly fell in March while Spain's economy shrank for the seventh straight quarter in the first three months of the year.
"It's looking more and more likely that the European Central Bank will indeed cut its main refinancing rate on Thursday while the Federal Reserve will stand pat on Wednesday," said Brian J. Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.
A cut in the ECB benchmark rate by 25 basis points to a record low of 0.5 percent after its policy meeting on Thursday has been largely factored in by financial markets, though many analysts and dealers still harbor some doubts it will happen.
In the commodity markets the growth concerns, heightened by the recent spate of weak economic data around the world, largely outweighed the hopes of further central bank support.
Brent crude dropped $1.44 to $102.37 a barrel. U.S. crude was $1.04 lower at $93.46 a barrel.
Gold fell as investors remained cautious ahead of the central banks meetings. Gold dropped 0.2 percent to $1,473.54.
ECB decision dashboard: link.reuters.com/ves65t
Asset performance in 2013: link.reuters.com/dub25t
Global equity returns: link.reuters.com/jyb29s
(Additional reporting by Richard Hubbard in London and Ellen Freilich, IFR and Wanfeng Zhou in New York; editing by Chizu Nomiyama, G Crosse)