NEW YORK (Reuters) - Stocks in the U.S. and Europe rallied along with the dollar on Wednesday after data showed the U.S. economy grew more quickly than expected in the second quarter and ahead of a Federal Reserve policy statement.
But even amid the positive sentiment after the U.S. data, investors remained focused on potentially game-changing central bank policy decisions in the next 24 hours from the Federal Reserve, the ECB and the Bank of England.
U.S. economic growth, as measured by gross domestic product, accelerated in the second quarter by a 1.7 percent annual rate, the government said. Economists had expected a 1.0 percent gain.
In addition, private employers added 200,000 jobs in July, according to the ADP National Employment Report, topping economists' expectations and laying a firmer foundation for the rest of the year that could bring the Fed closer to cutting back its stimulus.
"We have an upside surprise in the GDP, which speaks volumes for the job recovery that we're putting together," said Andre Bakhos, director of market analytics at Lek Securities in New York.
"The recovery in the economy is starting to take root. This will be an interesting development given the fact that we'll have a Fed announcement today, and it will play into how Wall Street perceives the Fed's tapering plans."
Halfway through the New York trading day, the Dow Jones industrial average was up 64.21 points, or 0.41 percent, at 15,584.80. The Standard & Poor's 500 Index was up 7.86 points, or 0.47 percent, at 1,693.82. The Nasdaq Composite Index was up 18.18 points, or 0.50 percent, at 3,634.65.
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Later Wedneday a Federal Reserve statement will be scoured for clues on when the U.S. central bank will curb its bond-buying stimulus program that has supported global markets.
On Thursday, attention will switch to European Central Bank and Bank of England policy meetings and data on global manufacturing activity, followed by the U.S. employment report on Friday.
Signs the developed world's central banks will keep monetary policy loose for a long time to support a tentative economic recovery have put many equity and commodities markets on course for their best month of the year in July.
But strategists have also cautioned that the gains, which could cause the MSCI World Equity index to post its best monthly rise since January 2012, have increased the risk that investors could find reasons over the next few days to cash out.
"At the least what we expect is a lot more volatility and we think the volatility comes with a bit more downside risk than upside potential," said Wouter Sturkenboom, investment strategist at Russell Investments in London.
Any hints of imminent "tapering" of Fed bond buying could hit stocks and gold but push the U.S. dollar higher, but few expect a clear-cut signal.
EUROPEAN STOCKS RISE
In Europe, stock market gains were underpinned by data showing the number of people out of a job in the euro zone fell for the first time in more than two years in June.
Europe's broad FTSEurofirst 300 index, was little changed though on track for it best month in over a year
The dollar was up 0.3 percent against the yen and little changed against the euro. The dollar index was up 0.1 percent.
"If there's any suggestion the Fed is going to taper the current bond buying program as soon as September, then that's U.S. dollar-positive," said Ben Le Brun, an analyst at OptionsXpress in London.
German Bund futures hit session lows on Wednesday after the U.S. data. Bund futures fell as low as 141.82.
The benchmark 10-year Treasury note lost 19/32, pushing its yield to 2.677 percent.
CHINA FEARS
Earlier in Asian trading, MSCI's Asia-Pacific ex-Japan share index slipped 0.6 percent, taking its losses so far this year to 5 percent as the region's markets suffer from fears that China's giant economy is slowing rapidly.
A reading on manufacturing activity in the world's second-largest economy due on Thursday is expected to add to those fears by showing a contraction in July for the first time in 10 months, according to a Reuters poll.
A recent run of weak Chinese data, which prompted a pledge from Beijing on Wednesday to keep growth stable in the second half of 2013, has also undermined commodities.
Gold fell 1.5 percent. But it is still up 6 percent so far this month, on track to snap a three-month losing run and mark its biggest monthly rise since January 2012, though it is down 20 percent since the beginning of 2013.
U.S. crude rose 1.1 percent to change hands at $104.19 a barrel ahead of the Fed statement.
(Reporting by Nick Olivari; Editing by James Dalgleish and Dan Grebler)