World stocks and the euro gained on Tuesday as Europe's worsening debt crisis and its impact on global growth encouraged talk of a policy response by the world's major central banks.
U.S. Federal Reserve begins on Tuesday a two-day policy-setting meeting with investors focused on whether it will unveil any more stimulus to support the lackluster recovery. Expectations of further stimulus from the Fed pressured the U.S. dollar across the board.
U.S. stocks were moderately higher, while world stocks, as measured by the MSCI's all-country world equity index rose 0.6 percent.
The euro was last up 0.5 percent on the day at $1.2640 after hitting session highs of $1.2647.
"There is positioning ahead of the Fed with the dollar unable to capitalize on euro negative sentiment ahead of the Fed," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "The risk is relatively high that (Fed) officials will signal the need for more stimulus."
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On Wall Street, the Dow Jones industrial average was up 68.87 points, or 0.54 percent, at 12,810.69. The Standard & Poor's 500 Index was up 9.67 points, or 0.72 percent, at 1,354.45. The Nasdaq Composite Index was up 25.06 points, or 0.87 percent, at 2,920.39.
A surprise fall in British inflation strengthened the chance of steps from the Bank of England to support the UK economy as it feels the heat of the euro zone's problems.
Gains in riskier asset markets were limited by concerns over a sharp rise in Spain's short-term borrowing costs, a big fall in German investor confidence, and fresh worries about Greece's commitment to its bailout plan.
On Monday, initial enthusiasm over a weekend victory for pro-bailout parties in Greek elections gave way to worry about the nagging debt crisis still facing the euro zone.
Spain was forced to pay yields of over five percent to sell 12- and 18-month Treasury bills in an auction as investors worried the country will soon have to ask for international aid. It faces a bigger test on Thursday with a sale of longer-term bonds.
In the oil market, Brent crude bounced from near a 17-month low.