Global Equities Rise, Dollar Slips Ahead of Fed

Investors bought stocks and sold the dollar on Tuesday ahead of a Federal Reserve meeting expected to cut interest rates and hint at future unorthodox monetary policies to lift the U.S. economy.

Wall Street looked set for a positive start, soothed by relatively good earnings from banking giant Goldman Sachs.

Oil was trading above $45, supported by expectations that OPEC will agree its largest supply cut ever later in the week.

The Fed is widely expected to cut interest rates to just 0.5 percent or lower. Futures markets are setting a two-thirds possibility of a 75 basis points cut to 0.25 percent.

With rates approaching zero, market players are now looking for clarity on what policy measures the Fed will consider using, such as outright purchases of financial assets, to help pull the economy out of a sharp recession.

Buying Treasury bonds, for example, would drive down yields even further.

"While an additional rate cut by the U.S. Fed is widely expected, market reaction to the cut is still very much uncertain, as another rate cut means the Fed is left with one less card to offer," said Lim Tae-gun, a market analyst at Daewoo Securities in Seoul.

Equity markets were generally positive with MSCI's main stock index in positive territory. If it stays that way for the month, the gain would be the first since May for the index, which is down more than 45 percent this year.

The pan-European FTSEurofirst 300 was up 0.7 percent after earlier been negative.

Euro zone manufacturing and services activity deteriorated by less than forecast in December, although both showed the economy to be contracting.

Earlier, Japan's Nikkei average closed down 1.12 percent.

OPEC TO CUT

Oil firmed after dropping 4 percent on Monday on persistent worries of a deepening economic slump. The weaker dollar, which tends to support commodities, also lent a hand.

U.S. light crude for January delivery was 80 cents higher at $45.231 a barrel.

Oil dropped to a four-year low of $40.50 on December 5 -- more than a $100 slide from its July all-time high -- as global economic turmoil depresses demand in large consumer nations such as the United States and Japan.

"OPEC could achieve limited success on Wednesday. They might do enough to stop prices from sliding further," said UBS economist Jan Stuart.

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In an attempt to build a floor under prices, Organization of Petroleum Exporting Countries ministers, who meet on Wednesday in Algeria, are calling for the largest output cuts ever to combat shrinking demand and bulging inventories.

On foreign exchanges, the dollar was lower against a basket of currencies.

The euro was flat at $1.3605 after earlier rising as high as $1.3738 platform EBS, the highest since mid-October.

The dollar dropped 0.9 percent to 89.90 yen, above a 13-year low of 88.10 yen hit on Friday.

The interest rate-sensitive two-year Schatz euro zone government bond yield was down 6 basis points at 2.098 percent.