GLOBAL MARKETS-World shares hit 12-month peak; dollar recovers

                                
 * Global stocks hit 12-month peak before paring gains
                                
 * Dollar steadies after touching 1-year low; kiwi jumps
                                
 * Crude falls towards $71, Europe CDS rally gathers pace
                                
 By Atul Prakash
                                
 LONDON, Sept 23 (Reuters) - World stocks hit their highest
in nearly 12 months on Wednesday and the dollar touched a
one-year low before steadying, but investors remained cautious
ahead of the Federal Reserve's policy decision later in the day.
                                
 Crude oil <CLc1> fell towards $71 a barrel, pressured by
doubts over U.S. demand after industry data showed a surprise
build in crude stockpiles.
                                
 The MSCI world equity index <.MIWD00000PUS> was up 0.2
percent at 291.69 points after rising to 292.08, its highest
since early October last year. The FTSEurofirst <.FTEU3> index
of top European shares rose 0.4 percent on the back of stronger
financial stocks.
                                
 The MSCI index has risen 28 percent so far this year.
                                
 Investors awaited a decision by the Fed, which is widely
expected to hold overnight lending rates at close to zero
percent. The Fed is likely to repeat its intention to keep rates
exceptionally low for an extended period in a statement at
around 1815 GMT, after the U.S. central bank's two-day policy
meeting draws to a close. [ID:nN22369584]
                                
 "We think the Fed is unlikely to communicate any near-term
reversal of its exceptionally accommodative monetary policy,"
said Geoffrey Kendrick, currency analyst at UBS.
                                
 The Fed is also expected to take note of an improving
economy, while cautioning that high unemployment puts the
recovery at risk. It is also seen keeping its massive financial
support for the economy in place.
                                
 European stocks got support from surveys showing euro zone
services business grew for the first time in 16 months in
September and factory output rose for the second month running,
suggesting the bloc has pulled out of recession.[ID:nLAG003765].
                                
 Sentiment also improved after U.S. Treasury Secretary
Timothy Geithner said on Tuesday that the world's biggest
economy was at the "beginnings" of a recovery, and the key was
to ensure that the recovery was self-sustaining.
                                
 A U.S. plan to build a more balanced global economy won 
support from leaders of some of the largest Western powers on
Tuesday, who warned against returning to business as usual once
recovery takes hold. [ID:nLM242341]
                                
 But some investors wanted to see more positive news.
                                
 "The markets are treading water, with neither the bulls or
the bears taking the lead. It feels as if it is easier for
investors to adopt a wait-and-watch approach until there is a
definite move either to the upside or the downside," said John
Murphy, analyst at ODL Securities.

                                
 DOLLAR STEADY AFTER 1-YR LOWS
                                
 The dollar steadied after falling to its weakest for a year
against a currency basket and the euro pulled back from a
one-year high struck against the dollar.
                                
 The New Zealand dollar surged to its highest in 13 months
against the U.S. currency after the economy unexpectedly pulled
out of recession in the second quarter, fuelling expectations
the central bank might have to start raising rates sooner than
previously thought.
                                
 "Overall the FOMC and the G20 are unlikely to disrupt the
recent positive tone in asset markets and that's likely to see
the trends in currency markets resume," said Ian Stannard,
currency strategist at BNP Paribas in London.
                                
 "I will be looking at the currency pullback I expect today
to be very much providing a buying opportunity for the
pro-cyclical and commodity currencies," he said.
                                
 Most euro zone government bond yields edged higher as the
market absorbed 5.6 billion euros ($8.28 billion) of new
five-year German debt which analysts said drew reasonable
demand.
                                
 A rally in European credit default swap spreads maintained
momentum and the flow of new bond issues accelerated in the cash
market, illustrating the scale of investors' appetite for
credit.
                                
 "Many investors may have missed the rally in credits and
started to invest in credits only lately, now driving the market
further towards tight credit spreads," strategists at UniCredit
said in a note to investors.
 (Additional reporting by Tamawa Desai, Emelia Sithole and Jane
Merriman in London; Editing by Victoria Main)