GLOBAL MARKETS-Stocks falter ahead of Fed meeting, dollar down

                                
 * All eyes on Fed, markets await statement
                                
 * Dollar weakens against major currencies
                                
 * Euro zone bond sale goes well
 (Updates with European markets close)
                                
 By Manuela Badawy
                                
 NEW YORK, Sept 21 (Reuters) - World stocks and the dollar
fell on Tuesday as investors awaited a Federal Reserve
statement that was expected to give some hint at whether the
central bank thinks the fragile U.S. economy needs a fresh
infusion of cash.
                                
 U.S. stocks were modestly lower as caution over the Fed
meeting overshadowed upbeat housing data. U.S. government bond
prices rose, however, supported by speculation the Fed will
retain, or even consider enhancing, its accommodative monetary
stance.
                                
 There was little expectation of any firm moves from the
Federal Reserve policymakers, but, as ever, the wording of
their statement, expected around 2:15 p.m. (1815 GMT), would be
key.
                                
 At issue is how close the stumbling U.S. economy is to
requiring the return of quantitative easing -- effectively
printing money to buy mortgage bonds and securities.
                                
 The Fed is expected to renew a promise to keep its
portfolio from shrinking but take no new steps to ease its
monetary policy.
                                
 The central bank acknowledged in August that the U.S.
recovery had lost momentum, and Fed Chairman Ben Bernanke said
it would renew efforts to stimulate growth if the outlook
soured appreciably. For details, see [ID:nSGE68J04M]
                                
  "The latest incoming data gives the Fed a little bit more
leeway," said Alan Lancz, president of Alan B. Lancz &
Associates Inc in Toledo, Ohio.
                                
 "Any economic projections or the breakdown in the vote of
the committee members will be what most investors will be
looking at," he said.
                                
 The Dow Jones industrial average <.DJI> was down 6.74
points, or 0.06 percent, at 10,746.88. The Standard & Poor's
500 Index <.SPX> was down 2.59 points, or 0.23 percent, at
1,140.12. The Nasdaq Composite Index  <.IXIC> was down 5.65
points, or 0.24 percent, at 2,350.18.
                                
 World stocks as measured by MSCI<.MIWD00000PUS> fell 0.14
percent while the pan-European FTSEurofirst 300 closed 0.3
percent lower ahead of the Fed's meeting. Technology stocks
also dragged down the market. Nokia <NOK1V.HE> fell 4.5 percent
after the world's top cellphone maker said it would again delay
its flagship N8 model smartphone.
                                
 Earlier, Japan's Nikkei <.N225> hit a seven-week intraday
high of 9,704.25 but ended down 0.3 percent at 9,602.11.
                                
 U.S. housing starts increased more than expected in August
to their highest level in four months and permits for future
home construction also rose.
                                
 "Investors are waiting on the sidelines. Yesterday the
market went up in anticipation that the Fed can do something
about the economy, but I think people are ignoring the
macroeconomic condition," said Koen De Leus, economist at KBC
Securities in Brussels.
                                
 DOLLAR DOWN
                                
 The euro <EUR=> was up half a percent at $1.3129, also
supported by solid demand at euro zone debt sales in some of
the troubled peripheral economies, which have appeared to be
heading into crisis again.
                                
 What had been increasing pressure on some euro zone debt
eased though with an Irish bond auction going smoothly and a
successful sale of Greek T-bills.
                                
 Greece sold 390 million euros ($512 million) of 3-month
T-bills at an average yield of 3.98 percent, down from 4.05
percent in a July 20 sale. Overseas investors bought 72
percent, a sign of relative confidence.
                                
 Ireland sold 1.5 billion euros in an auction of 2014 and
2018 bonds, at the top of its target range. Their yields --
4.767 percent and 6.023 percent respectively -- were well below
those seen for the bonds on secondary markets on Monday.
                                
 "Very strong auctions from Greece and Ireland. This along
with the spread tightening we've seen this morning and the
strong bid-cover ratios means this funding round for Ireland
and Greece has been passed convincingly," said Peter Chatwell,
rate strategist at Credit Agricole in London.
                                
 Against the Japanese yen, the dollar <JPY=> was down 0.37
percent at 85.35 from a previous session close of 85.680.
                                
 BONDS UP AHEAD OF FED
                                
 U.S. Treasury debt prices were higher on hopes the Fed will
retain its accommodative monetary stance.
                                
 The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
11/32, with the yield at 2.6646 percent. The 2-year U.S.
Treasury note <US2YT=RR> was up 1/32, its yield at 0.456
percent. The 30-year U.S. Treasury bond <US30YT=RR> was up
22/32, yielding 3.8325 percent.
                                
 In energy and commodities trading, October crude oil <CLc1>
fell $1.92, or 2.56 percent, to $72.94 per barrel on concerns
over the outlook for the global economy and ahead of the
contract's expiration later on Tuesday.
                                
 Spot gold prices <XAU=> fell $2.30, or 0.18 percent to
$1274.50 as the market consolidated after three days of record
highs.
 (Additional reporting by Ellen Freilich, Edward Krudy and
Vivianne Rodrigues in New York, Editing by Dan Grebler)