GLOBAL MARKETS-Earnings drive stocks higher, Fed awaited

                                
 * MSCI world equity index hits 3-1/2-month high
                                
 * Positive earnings spur equity gains before Fed statement
                                
 * US Q1 GDP down more-than-expected, inventories drop
                                
 By Al Yoon
                                
 NEW YORK, April 29 (Reuters) - World stocks rallied on
Wednesday and government bonds held firm after forecast-beating
earnings overshadowed a report of weaker-than-expected growth
in the United States.
                                
 Time Warner Inc <TWX.N>, the second-largest U.S. cable
operator, and Qwest Communications International Inc <Q.N> beat
expectations for quarterly results, encouraging gains in broad
measures as they rose 3.5 percent and 3 percent, respectively.
The Dow Jones Industrials Average climbed 142.73 points, or
1.78 percent, to 8,159.68, its highest since April 17.
                                
 In Europe, Germany's Siemens <SIEGn.DE> rose 8 percent
after reporting strong first-quarter figures, while Spain's
Santander <SAN.MC>, the euro zone's largest bank, gained more
than 6 percent after beating Q1 forecasts.
                                
 Global shares drew demand even as the U.S. Commerce
Department said the American economy shrank 6.1 percent in the
first quarter, more than the 4.9 percent decline forecast by
economists in a Reuters survey. The report buoyed Treasury
debt, which is seen as a safe-haven in recession, but equity
investors also took heart in data that showed a sharp decline
in inventories. For story, see: [ID:nN29396010].
                                
 "What everybody is hanging their hat on is this inventory
draw, and the expectation that inventories are that far down
that the next thing that's going to happen is that you're going
to have to build inventories and we're going to have start
manufacturing," said Paul Nolte at Hinsdale Associates in
Hinsdale Illinois.
                                
 "The expectation is this is the worst and things get better
from here because we will start to rebuild inventories."
                                
 Shares of diversified manufacturer United Technologies Corp
<UTX.N> provided some of the biggest lift for the Dow, up
nearly 3 percent at $49.25.
                                
 In other U.S. benchmark indexes, the Standard & Poor's 500
Index <.SPX> rose 16.58 points, or 1.94 percent, to 871.74. The
Nasdaq Composite Index <.IXIC> climbed 37.86 points, or 2.26
percent, to 1,711.67.
                                
 The MSCI world equity index <.MIWD00000PUS> jumped 2.49
percent to a three-and-a-half-month high, and a gauge of
emerging market stocks <.MSCIEF> rose more than 3 percent.
                                
 Investors were anticipating the outcome of the Federal
Reserve policy meeting, where the central bank is expected to
hold its benchmark interest rate at zero to 0.25 percent.
                                
 Benchmark 10-year Treasury notes <US10YT=RR> were little
changed at 97-24/32, and their yields, which move inversely to
price, held at 3.02 percent from late on Tuesday.
                                
 U.S. crude oil <CLc1> rose 1 percent to $50.39 a barrel.
                                
 In the currency market, the U.S. dollar fell against the
euro as a recovery in share prices in the United States and
around the world showed rising risk tolerance. Helping the euro
was a European Commission survey showing that economic
sentiment in the region improved more than expected in April
from March. [ID:nLT148975]
                                
 Equity, bond and currency traders awaited a statement from
Fed policy makers. With benchmark U.S. interest rates already
near zero, the traders and investors are looking for any
extension of quantitative easing, and will focus on the central
bank's economic outlook following signs that the pace of the
economic downturn is lessening. A statement is expected at
about 2:15 p.m. (1815 GMT).
                                
 The Fed has left interest rates at a record low level since
December. After its meeting in March, the U.S. central bank
announced plans to boost quantitative easing and pump an
additional $1.15 trillion into the economy with purchases of
mortgage and U.S. Treasury debt.
                                
 The dollar declined against a basket of major
trading-partner currencies, with the U.S. Dollar Index <.DXY>
down 1.08 percent at 84.255 from a previous close of 85.171.
                                
 The euro <EUR=> rose 1.33 percent to $1.3319 from a
previous close of $1.3144. Against the yen, the dollar <JPY=>
edged higher by 0.59 percent to 96.95 from 96.380.
                                
 (Additional reporting by Nick Olivari, Ellen Freilich and
Leah Schnurr, Editing by Chizu Nomiyama)