By Herbert Lash
NEW YORK (Reuters) - The euro dived to a 12-year low against the dollar on Wednesday, helping lift European stocks on gains by regional exporters, while U.S. equity markets edged higher despite concerns about when the Federal Reserve would begin to raise interest rates.
Divergent central bank policies, with the European Central Bank's bond-buying program beginning on Monday and the Fed poised to possibly raise rates as early as June, have pushed euro zone bond yields down and those on U.S. government debt higher.
The euro extended its decline, falling more than 1 percent to below $1.06 for the first time since early 2003, as yields in the euro zone collapsed. Yields on German 30-year government bonds are now lower than those on U.S. two-year paper.
Expectations that the Fed will end its near-zero rate policy amid a tightening labor market propelled the dollar index of six major currencies to almost a 12-year high. On Tuesday, the greenback rose to a 7-1/2-year high against the yen.
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The decline in euro zone yields lifted Germany's DAX stock index, which includes major exporters BMW and Volkswagen, to a record high. The broader pan-European FTSEurofirst 300 index rose 1.13 percent.
"The strength of the U.S. dollar is going to support European equities. We remain with a 'buy on the dip' strategy," said Francois Savary, chief strategist at Swiss bank Reyl.
Stocks on Wall Street edged higher.
The Dow Jones industrial average rose 38.89 points, or 0.22 percent, to 17,701.83. The S&P 500 gained 1.41 points, or 0.07 percent, to 2,045.57 and the Nasdaq Composite added 0.28 points, or 0.01 percent, to 4,860.07.
MSCI's all-country world index, a measure of stock performance in 46 countries, rose slightly.
The euro was broadly lower against other major currencies, slumping to a seven-year low against sterling at 70.145 pence and an 18-month low of 128.20 yen.
The euro fell 1.16 percent to $1.0573, while the dollar gained 0.23 percent to 121.41 yen.
Ten-year U.S. Treasuries fell 1/32 in price to yield 2.1333 percent, while two-year Treasuries fell slightly in price, pushing yields up to 0.6962 percent.
The 10-year German bund rose to yield 0.203 percent, while the 30-year German bund yielded 0.661 percent.
U.S. crude oil prices hit a one-month low after government data showed an oil inventory build in the United States last week, contrary to expectations by some traders for a draw.
The front-month contract in U.S. West Texas Intermediate crude was down 59 cents at $47.70 a barrel.
Brent for April delivery hit a one-month low of $55.92 and last traded up 50 cents at $56.89.
(Reporting by Herbert Lash; Editing by James Dalgleish)
