* MSCI world equity index up 0.25 percent at 317.57
* Fed meeting, mid-term US elections keep investors cautious
* Dollar falls broadly, oil higher
By Natsuko Waki
LONDON, Nov 2 (Reuters) - World stocks rose towards last
week's two-year high on Tuesday while the dollar fell broadly as
expected monetary easing from the Federal Reserve and a recent
upturn in global economic data underpinned risk appetite.
The Australian dollar hit its highest level against the
dollar since 1983 after Australia surprised with an interest
rate hike just before the Fed began a two-day meeting.
The U.S. central bank is expected to announce a large-scale
asset purchases on Wednesday to spur economic recovery, with
dealers expecting asset buying of up to $100 billion per month
under a quantitative easing programme.
The size of the programme is key as a bigger than expected
asset buying -- or money printing -- will weigh on the dollar
and boost commodity prices, while smaller buying would hit
investor risk appetite.
"The main story is what the Fed will do tomorrow and what it
will do to the dollar," Commerzbank commodities analyst Carsten
Fritsch said.
"The risk is that the markets are disappointed in the scale
of QE2, that it is less than some people are expecting."
The MSCI world equity index <.MIWD00000PUS> rose a quarter
of one percent, and the Thomson Reuters global stock index
<.TRXFLDGLPU> gained 0.9 percent.
Positive economic data on Monday also underpinned investor
morale. U.S. factory activity in October expanded and
construction spending rose unexpectedly in September while
manufacturing in China expanded at the fastest pace in six
months in October.
The FTSEurofirst 300 index <> was up 0.4 percent while
emerging stocks <.MSCIEF> rose 0.2 percent.
U.S. crude oil <CLc1> gained 0.5 percent to $83.33 a barrel.
Bund futures <FGBLc1> rose 64 ticks. The spread investors
pay to hold the Irish 10-year government bonds rather than
German benchmarks hit a new high around 486 basis points as
investors remained concerned about peripheral euro zone debt.
The dollar <.DXY> fell 0.3 percent against a basket of major
currencies.
Earlier, the Reserve Bank of Australia raised its cash rate
by 25 basis points to 4.75 percent as a pre-emptive strike
against inflation, sending the Aussie above parity to $1.0013
<AUD=>, its highest since the currency was floated in 1983.
"We're entering uncharted territory, but the Aussie has
staying power up here," said Carl Hammer, chief currency
strategist at SEB in Stockholm.
"We see it trade above parity in the mid term, as there's
also the issue of general dollar selling."
Investors are reluctant to take huge positions, with
Tuesday's U.S. mid-term elections also a factor. A Reuters/Ipsos
poll found on Monday Republicans will take control of the U.S.
House of Representatives from President Barack Obama's
Democrats.
Republicans are poised to gain at least 50 seats in the
House and take control of the chamber but are unlikely to take
the Senate, polls indicate.
(Editing by John Stonestreet)
