* Dollar at 2-mth vs euro, 10-wk low on index as FOMC meets
* World stocks push higher, helped by Obama speech
* U.S. bonds hold Tuesday rally on Obama speech, Fed
By Mike Dolan
LONDON, Jan 26 (Reuters) - World stocks rose and the dollar
hit a two-month low against the euro on Tuesday after a promise
of spending cuts from U.S. President Barack Obama cemented
expectations the Fed will retain faith in its ultra-loose
policy.
Obama's speech late on Tuesday, which also signalled
corporate tax cuts, came ahead of the U.S. central bank's latest
policy decision, due at 1915 GMT.
Signs of Washington getting some grip on its bloated budget
deficits, even at the margin, will reinforce speculation of no
change to the monetary policy stance this year.
By helping keep the Fed interest rate horizon and long-term
U.S. interest rates low, tighter fiscal policy tends to weaken
the dollar -- especially against a euro lifted by the European
Central Bank's increasing hawkishness on inflation and rate
rises there.
Betting on easy U.S. money persisting and the prospect of
balancing those budget cuts with corporate tax breaks added a
fillip to U.S. and global equity prices.
"The stock market should be fine with the spending freeze,"
said Christopher Low, chief economist at FTN Financial in New
York. "People don't want additional stimulus here. This will
allow investors to focus on the Fed."
U.S. market economists were encouraged by the tax proposal.
"The corporate tax proposal might have a beneficial effect
on the market but these things have long journeys before being
accomplished," said Stephen Massocca, managing director at
Wedbush Morgan in San Francisco.
And most strategists reckoned there was enough there to help
keep Fed policy loose.
"We expect the Fed to maintain its commitment to asset
purchases up to the end of the second quarter and keep its
"extended period" language despite a more upbeat view of the US
economy," said Nick Stamenkovic, RIA Capital rate strategist.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> Graphics of markets: http://link.reuters.com/rem45n
U.S. Fed begins two-day meeting []
Obama's State of the Union speech []
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TRANSATLANTIC CONTRAST
The soft U.S. yield outlook, where 10-year Treasury bond
yields <US10YT=RR> lost more than five basis points on Tuesday,
dragged the dollar to a 10-week low against a basket of world
currencies <.DXY> and to a two-month low of $1.3708 to the euro.
While U.S. bonds were steadier on Wednesday, Europe's
FTSEurofirst 300 <> jumped 0.75 percent, and world stocks
measured by MSCI All-Country World Index <.MIWD00000PUS> climbed
0.35 percent.
U.S. stock index futures <SPc1> <DJc1> <NDc1> were up about
0.4 percent, indicating a stronger opening on Wall Street after
a flat session on Tuesday.
Earlier, Japan's Nikkei average <> fell 0.5 percent,
giving back some of the previous day's 1 percent rally. But
other Asian markets ticked up slightly and MSCI's index of Asian
stocks outside Japan <.MIAPJ00000PUS> rose 0.1 percent.
Emerging Asian markets rose powerfully in 2010, but since
then some investors have taken profits, and some pulled money
out of economies they fear are the most vulnerable to the
harmful effects of inflation, a growing global concern.
"Worries over monetary tightening will persist in the long
term, weighing especially on shares of producers dependent on
raw materials as their prices are still near all-time highs,"
said Masayuki Otani, chief analyst at Securities Japan Inc.
In Europe, energy stocks featured among the best performers,
with the STOXX Europe 600 Oil & Gas index <.SXEP> up 0.7
percent. BG Group gained 3.1 percent after a new discovery
confirmed light oil in the Carioca area, offshore Brazil.
Crude oil futures <CLc1> were up 0.5 percent in early trade.
(Additional reporting by Daniel Magnowski in Singapore,
Joanne Frearson and Kirsten Donovan in London; Editing by John
Stonestreet)
