* World shares gain ground ahead of U.S. rate decision
* Fed expected to keep "low for long" language on rates
* Dollar steady before Fed, euro hampered by Greece
By Ian Chua
LONDON, March 16 (Reuters) - World stocks climbed on Tuesday
while the dollar was corralled as investors bet the U.S. central
bank will repeat its vow of keeping interest rates low for an
extended period after its monthly meeting.
The Federal Reserve is expected to leave benchmark rates
near zero given lingering labour market weakness and nagging
doubts about the solidity of the economic recovery. The outcome
of the meeting is due at 1815 GMT. []
"Given the market's reaction to the surprise cut in the
discount rate, we suspect that the FOMC will be cautious in
their language," said Mitul Kotecha, head of global FX strategy
at Credit Agricole, referring to the policy setting arm of the
Fed -- the Federal Open Market Committee (FOMC).
"Policy will remain unchanged and we expect the majority of
the FOMC to remain comfortable with the notion that rates will
stay low for an 'extended period'."
Leaving out 'extended period' in the statement would likely
cause U.S. Treasury yields to rise but may boost the dollar as
it would be seen by the market as a further step towards
normalising ultra-loose monetary policy, analysts said.
MSCI's all-country world index <.MIWD00000PUS> rose 0.3
percent, with the pan-European FTSEurofirst 300 <> gaining
0.7 percent. Japan's Nikkei closed 0.3 percent <> lower as
the market took a breather after having risen to a seven-week
high in the previous session.
The Fed's decision comes as investors braced for China to
further tighten policy following a recent raft of strong
economic data and inflation at a 16-month high in February.
This has been keeping equity investors cautious.
The Bank of Japan, which will announce the outcome of its
meeting on Wednesday, is leaning towards easing monetary policy
again, under pressure from a government calling for action to
beat deflation, sources said, but the board is split on how to
justify the move. []
EURO OUTLOOK HINGES ON GREECE
In the forex market, the dollar index <.DXY>, a gauge of its
performance against six other currencies, slipped 0.1 percent to
80.18, but was still some way off a three-week low of 79.692 set
set on Friday.
"No one seriously expects much change in the Fed's language,
but the market thinks that if there is a risk it will be that
they are more upbeat, which would benefit the dollar," said
Jeremy Stretch, currency strategist at Rabobank in London.
The euro also struggled and was little changed against the
dollar and yen at $1.3677 <EUR=> 123.84 yen <EURJPY=R>.
Analysts said a rescue plan for Greece outlined by euro zone
finance minsters on Monday lacked detail and was unlikely to
provide the euro with firm support for now.
"Only a complete plan, which defines not just the aid
payments but also the conditions it is linked to, the control
mechanisms and the sanctions to be taken in case the conditions
are breached, would have the potential of causing a sustainable
correction in euro/dollar," said Commerzbank forex analysts in a
note.
Finance ministers from the 16-country euro zone agreed on
Monday to mobilise financial aid for Greece rapidly if needed
but revealed little of how their standby plan for the
debt-stricken nation would work. []
With stocks rising, demand for lower risk government debt
eased, driving yields higher. The benchmark U.S. 10-year note
yield <US10YT=RR> climbed 1.1 basis points to 3.71 percent,
while the euro zone benchmark German Bund yield <EU10YT=RR>
edged up one basis point to 3.165 percent.
U.S. crude futures <CLc1> slipped 0.3 percent to $79.54 a
barrel, still shaky after falling 1.8 percent to the lowest
close in two weeks on Monday.
Spot gold <XAU=> rose to around $1,113 an ounce, up more
than $4 from New York's notional close, while copper prices
<MCU3=LX> gained one percent to $7,371 a tonne.
(Additional reporting by Jessica Mortimer, editing by Mike
Peacock)
