By Mike Dolan
World stocks climbed and the dollar fell on Tuesday ahead of the Federal Reserve's two-day policy meeting, with investors' search for higher returns reflected in the New Zealand dollar's surge to 13-month highs.
European equities followed Asia markets higher in early trading, while safe-haven U.S. and German government bond prices and the U.S. dollar all retreated.
The dollar hit a one-year low against the euro at $1.4793 early in European trade.
New Zealand's dollar -- often seen as a bellwether of global risk appetite -- surged to a 13-month high above $0.7210.
The kiwi's move mirrored a wider bullishness.
World stocks, measured by MSCI's global index, were up 0.8 percent. The index has now risen over 26 percent this year, recouping more than half of last year's losses, underpinned by 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.
The Fed is expected to keep its benchmark Fed Funds rate unchanged at 0.25 percent but investors are looking for signs of how quickly it might remove its extraordinary programmes to revive lending and economic activity.
By 0735 GMT (3:35 a.m. EDT), the FTSEurofirst 300 index rose 0.8 percent and U.S. stock futures were up 0.6 percent. Global emerging market stocks climbed 0.8 percent.
Energy stocks advanced as crude oil climbed to $70 a barrel, bouncing back after its 3 percent decline on Monday.
BP , Royal Dutch Shell , BG Group , Tullow Oil , Repsol , Total and StatoilHydro added 0.5-2.1 percent.
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.
Some traders said the dollar retreat was exaggerated by technical trading. Options-related buying and strong demand from Asian accounts pushed the euro up toward $1.48, while the dollar also hit a 14-month low against the Swiss franc.
"Overall the trend for the dollar is still down," said Marcus Hettinger, global FX strategist at Credit Suisse in Zurich, adding he saw the euro at $1.50 by the end of the year.
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.