* MSCI world equity index up 0.9 pct at 290.45
* Broadly weak USD sets 1-year low vs euro before Fed, G20
* Oil firmer; government bonds lower
By Natsuko Waki
LONDON, Sept 22 (Reuters) - World stocks and oil climbed on
Tuesday ahead of the Federal Reserve's two-day policy meeting,
while investors' search for higher returns pushed the dollar
down to a one-year low against the euro.
European equities <> and U.S. stock futures <SPc1>
followed Asia markets <.MIAPJ0000PUS> higher, while safe-haven
U.S. and German government bond prices <US10YT=RR> <FGBLc1> and
the low-yielding dollar <.DXY> all retreated.
The latest leg of the rally in risk assets, which helped
world stocks recoup more than half of last year's losses,
stemmed from repeated pledges by G20 policymakers to keep
emergency economic support in place.
The G20 summit in Pittsburgh on Thursday and Friday is
expected to underline that commitment while the Fed's Open
Market Committee is expected to do likewise when its latest
meeting ends on Wednesday.
"The fundamental position for all equity markets has just
been improving and we know that the central banks, particularly
the UK and, importantly, the Federal Reserve, are committed to
keep interest rates low for a long period of time," said Mike
Lenhoff, chief strategist at Brewin Dolphin.
MSCI world equity index <.MIWD00000PUS> rose 0.9 percent,
closing in on last week's 11-month high. The index has risen
over 27 percent since January.
The FTSEurofirst 300 index rose more than 1 percent while
emerging stocks <.MSCIEF> rose 0.9 percent. U.S. stock futures
<SPc1> were up 0.7 percent.
The dollar fell as low as $1.4821 per euro <EUR=>, while the
New Zealand dollar <NZD=D4> -- often seen as a bellwether of
global risk appetite -- surged to a 13-month high above $0.7230.
[]
Energy stocks advanced as crude oil <CLc1> gained 1.6
percent to $70.87 a barrel, bouncing back after its 3 percent
decline on Monday.
The Fed is expected to keep its benchmark Fed Funds rate
unchanged at 0.25 percent. Investors are looking for signs of
how quickly it might remove its extraordinary programmes to
revive lending and economic activity.
DOLLAR WARY OF G20
Although trading volumes in Asia were capped by public
holidays in Japan, G20 discussions on plans to rebalance the
world economy were read by traders as dollar negative there and
this sentiment spilled over to Europe.
A document outlining the U.S. position ahead of the summit
said exporters, which include China, Germany and Japan, should
consume more, while debtors like the United States ought to
boost savings. []
"Without greater confidence that the U.S. recovery is
robust, any pro-cyclical support for the dollar may be delayed,"
Simona Paravani, global investment strategist at HSBC Global
Asset Management, said in a note to clients.
"The Federal Reserve is likely to err on the side of caution
and keep rates low for longer than current forward money market
rates suggest, another factor that counterbalances support from
the recently more positive economic picture. We retain our
neutral view on the dollar."
Government debt markets were weighed down by a fresh wave of
new debt sales this week.
A substantial $112 billion in two-year, five-year and seven
year U.S. notes is due to come on stream this week, with a
record $43 billion two-year bond sale on Tuesday. [].
(Additional reporting by Atul Prakash)
