By Caroline Valetkevitch
NEW YORK (Reuters) - World stock markets rose with bank shares and short-dated U.S. bond yields hit multi-week peaks on Tuesday as investor focus turned to the Federal Reserve's monetary policy meeting.
Technology shares also edged higher after a two-session sell-off that put the spotlight on areas of the stock market where valuations appear stretched.
The Fed, the U.S. central bank, is widely expected to raise its benchmark interest rate on Wednesday and may also provide details on its plans to shrink $4.5 trillion of assets it amassed to nurse the economic recovery.
Analysts say the Fed could take an aggressively hawkish posture of signaling a balance sheet reduction this year and another rate increase in December.
"Wednesday's meeting is pretty much a high-risk event," said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York.
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The Bank of Japan and the Bank of England also meet this week, although no major policy changes are expected.
The gap between benchmark U.S and European bond yields held near its widest in a month as the Fed meeting also shone a light on the slow pace of change in European Central Bank policy.
The Canadian dollar hit a two-month high after Bank of Canada Governor Stephen Poloz said the central bank's 2015 rate cuts "have largely done their work," signaling that it could raise rates sooner than previously thought.
A U.S. dollar index was down 0.1 percent.
In the Treasury market, U.S. two-year yields touched 1.359 percent, their highest in a month, while three-year yields touched their highest since May 24 at 1.500 percent ahead of three- and 10-year note auctions on Monday.
Big technology names like Microsoft and Alphabet helped prop up U.S. stocks.
The Dow Jones Industrial Average was up 54.03 points, or 0.25 percent, to 21,289.7, the S&P 500 had gained 5.18 points, or 0.21 percent, to 2,434.57 and the Nasdaq Composite had added 25.29 points, or 0.41 percent, to 6,200.76.
The pan-European STOXX 600 was up 0.6 percent.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=https://bsmedia.business-standard.comemea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
Oil prices edged higher, reversing earlier losses.
Brent crude futures were up 0.3 percent at $48.42 per barrel, while benchmark U.S. crude was up 0.1 percent at $46.12.
(Additional reporting by Sam Forgione in New York, John Geddie in London and Nichola Saminather in Singapore; Editing by Catherine Evans and James Dalgleish)