By Marc Jones
LONDON (Reuters) - The euro and world shares gained on Tuesday as the dollar steadied before a two-day meeting of the U.S. Federal Reserve, where the Fed may edge closer to its first interest rate rise in almost a decade.
Solid gains for Asian markets overnight gave way to up and down trading in Europe. The euro notched its first two-day run of gains in three weeks, a disadvantage for the euro zone's exporters. [FRX/]
Euro zone bonds paused and commodity markets and oil remained under pressure from a global supply glut, after losing as much as 4 percent in the previous session.
Fed policymakers will kick off their two-day meeting later, and many analysts expected them to remove the "patient" reference to rate rises from their policy statement. That would put them a step closer to their first hike since 2006.
Economists polled by Reuters are almost evenly split on whether a rate increase will come in June or later in the year. Downbeat U.S. manufacturing and housing data on Monday led to talk the Fed would remain cautious.
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"U.S. data has remained on the weak side, despite tightness in the labour market. This allows the FOMC (Fed) to remove the patience language and remain dovish in the statement tomorrow," said Nick Lawson, a managing director at Deutsche Bank.
"That so much discussion around the economy is still warranted whilst equity price performance marches on toward imperious new highs is clear evidence that assets are out- performing underlying economics."
After weakening to a 12-year low of $1.0457 at the start of the week, the euro briefly topped $1.06 in early European trade, before running out of momentum and dipping back to $1.0590.
The dollar was broadly flat against a basket of major currencies as it steadied after its biggest drop in more than a month on Monday. Benchmark 2- and 10- year U.S. government bond yields also stabilised after five days of declines in the last six.
COMMODITIES CRUNCHED
Britain's FTSE 100 was the only major index in Europe in positive territory by 1000 GMT. Wariness over the Fed offset the effects of the bond-buying programme the European Central Bank began last week.
London was up 0.4 percent, but Frankfurt's Dax fell 0.4 percent and Paris's CAC 40 lost 0.2 percent. Italian stocks dropped 0.4 percent and Spain's declined 0.2 percent.
German business sentiment data from the ZEW institute saw a fifth consecutive rise in confidence, largely thanks to the ECB's efforts to stimulate the euro zone economy.
Chinese shares reached seven-year highs in Asia trading on hopes that the Chinese government would loosen policy to bolster its slowing economy. Japan's Nikkei climbed to a 15-year high as the yen edged lower after the Bank of Japan maintained its stimulus and its optimistic assessment of the economy at its latest meeting.
Beijing's use of monetary and fiscal policies to bolster the economy is "identical to what happened in the U.S.," when the Fed's quantitative easing in 2009 caused U.S. stocks to soar, said Wu Wenzhe, fund manager at China International Management.
Australian shares climbed almost 0.8 percent and the aussie dollar fell after the Reserve Bank of Australia (RBA) left the door open for another interest rate cut.
Despite the pause in the U.S. dollar, Brent oil fell back below $54 a barrel in choppy trade, copper tumbled 1.4 percent and precious metal platinum slumped to a 5 1/2-year low.
"The sentiment around platinum is quite negative. It's a combination of supply coming back online after the strikes last year and it's certainly getting no support from the gold market," said ANZ analyst Victor Thianpiriya.
(Editing by Larry King)