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NEW YORK (Reuters) - The dollar rose and U.S. and European equity markets pushed higher on Tuesday as investors fixed their attention on the future of U.S. monetary policy ahead of the Federal Reserve's policy meeting.
The U.S. central bank kicks off a two-day gathering on Tuesday, with global markets across asset classes on high alert for any guidance on when and how quickly it may wind down its bond buying program. The central bank issues its policy statement on Wednesday, which will be followed by a news conference by Chairman Ben Bernanke.
Wall Street opened little changed before extending gains about an hour into trading, while European shares edged higher.
The Fed meeting has taken on greater significance since Bernanke said in May stimulus plans could be scaled back if the U.S. economy gains momentum, comments which have thrown a wrench in this year's equity market rally.
The Fed's policy won't show major changes after the meeting, according to Todd Salamone, director of research at Schaeffer's Investment Research in Cincinnati.
"They won't do anything in this meeting and I think the data supports that," Salamone said. "We remain in a holding pattern until the policy statement is released."
The Dow Jones industrial average .DJI gained 102.97 points, or 0.68 percent, to 15,282.82. The Standard & Poor's 500 Index .SPX rose 8.59 points, or 0.52 percent, to 1,647.63. The Nasdaq Composite Index .IXIC climbed 20.35 points, or 0.59 percent, to 3,472.48.
European shares .FTEU3 were up 0.1 percent. Stocks found some support in a rise in investor sentiment in Germany that suggested Europe's largest economy is on the slow road to recovery. But it was only a brief distraction ahead of the Fed.
U.S. equities took little direction from data that showed U.S. consumer prices rose in May and a gauge of underlying price pressures showed signs of stabilization after a long decline. That could be encouraging to Fed policymakers who would like to see stronger inflation.
But the rise in consumer prices was slightly weaker than economists had expected and weighed on U.S. Treasuries prices, with bond investors also focused on the Fed.
Benchmark 10-year Treasuries were last down 5/32 in price to yield 2.21 percent. Thirty-year bonds fell 6/32 in price to yield 3.37 percent.
The dollar, which should gain from any hint of an early Fed tapering, rose against most other major currencies and recovered from a recent two-month low against the Japanese yen, gaining 1.1 percent to 95.51 yen.
HSBC strategist Daragh Maher expects Bernanke to emphasize that any scaling back of Fed stimulus will depend on data. "While this should be generally dollar bullish, if volatility rises it could see dollar/yen lose ground."
The U.S. economic data helped boost Brent crude above $106 a barrel as it eased some concerns over what the Fed may signal. Brent rose 67 cents to $106.14, while U.S. oil was up 55 cents at $98.32.
"If the Fed takes away the stimulus, it will boost the dollar and potentially push oil prices down, but a lot has been priced in already," said Simon Wardell, analyst at Global Insight.
"The Fed will try to do it as gradually as possible to avoid a shock so the impact on oil will probably be minimal."
In the debt markets, German government bonds fell in line with U.S. Treasuries on expectations the Fed may signal it is moving closer to trimming its bond purchases. <GVD/EUR>
Germany's ZEW business sentiment survey showed an uptick in the mood in Germany, as expected, though its impact was limited, coming a day after the Bundesbank said it saw a summer slowdown.
Elsewhere figures showed car sales in Europe plunged to the lowest level in two decades last month.
Additional reporting by Rodrigo Campos and Wanfeng Zhou in New York, Ron Bousso in London; Editing by Chizu Nomiyama