GLOBAL MARKETS-U.S. stocks fall as Fed convenes, euro wavers as Germany passes debt reform

By Stephen Culp

NEW YORK, March 18 (Reuters) - Wall Street turned lower and gold surged to record highs on Tuesday as Israeli airstrikes on Gaza revived geopolitical jitters and the U.S. Federal Reserve gathered to discuss monetary policy amid growing economic uncertainty.

A vote by Germany's parliament to overhaul government spending caused the euro to waver, although it also sent European stocks higher and boosted German shares to near-record highs.

Even so, all three major U.S. stock indexes were lower in early trading, with weakness in tech-related megacap stocks dragging the tech-laden Nasdaq down the most.

A new round of Israeli missile attacks on the Gaza Strip, killing over 400 people, brought Middle East tensions from a simmer to a boil, even as U.S. President Donald Trump and Russian President Vladimir Putin held a call to discuss terms of a potential end to Russia's war on Ukraine.

"There's a lot of turmoil in the world, things can change direction pretty quickly," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

The U.S. Federal Reserve is convening for its two-day monetary policy meeting, which is expected to culminate in the central bank leaving its key interest rate unchanged until further inflation progress is made and the effects of the Trump administration's erratic tariff policies are known.

"The markets don't know where tariffs stand; whether they're on, whether they're off... I was more surprised by the rally of the past two days, quite frankly, than I am by the weakness today," Tuz added.

A stronger-than-expected rebound in single-family housing starts and robust industrial output data provided a welcome change from generally lackluster recent indicators, and some reassurance that the U.S. economy is not in danger of imminent recession.

The Dow Jones Industrial Average .DJI fell 334.15 points, or 0.80%, to 41,505.78, the S&P 500 .SPX fell 68.53 points, or 1.21%, to 5,606.59 and the Nasdaq Composite .IXIC fell 313.10 points, or 1.76%, to 17,496.33.

European shares edged higher and German stocks hovered near record highs as the German parliament approved a debt reform package to boost Europe's biggest economy.

So far this year, European stocks have outperformed their global counterparts.

Europe's broad FTSEurofirst 300 index .FTEU3 rose 9.72 points, or 0.44%.

MSCI's gauge of stocks across the globe .MIWD00000PUS fell 4.97 points, or 0.59%, to 838.53.

The pan-European STOXX 600 .STOXX index rose 0.47%, while emerging market stocks .MSCIEF rose 13.65 points, or 1.21%, to 1,145.09. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS closed higher by 1.15%, to 595.06, while Japan's Nikkei .N225 rose 448.90 points, or 1.20%, to 37,845.42.

U.S. Treasury yields were steady as growing economic optimism helped counter lingering fears about the impact of Trump's multi-front tariff war.

The yield on benchmark U.S. 10-year notes US10YT=RR fell 1.3 basis points to 4.293%, from 4.306% late on Monday. The 30-year bond US30YT=RR yield was flat at 4.5987% from 4.599% late on Monday.

The 2-year note US2YT=RR yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 1.3 basis points to 4.04%, from 4.053% late on Monday.

The dollar held its ground. The euro, having touched a five-month high earlier in the session, wavered after Germany voted for its debt overhaul, before adding to its gains.

The dollar index =USD, which measures the greenback against a basket of currencies, fell 0.08% to 103.38, with the euro EUR= up 0.06% at $1.093.

Against the Japanese yen JPY=, the dollar strengthened 0.17% to 149.47.

The Mexican peso MXN= weakened 0.08% versus the dollar at 19.972.

The Canadian dollar CAD= weakened 0.13% versus the greenback to C$1.43 per dollar.

Cryptocurrencies lost ground as swelling geopolitical strife and policy uncertainties lured investors to less risky assets.

Bitcoin BTC= fell 2.53% to $81,847.64. Ethereum ETH= declined 2.46% to $1,888.17.

Crude oil prices were supported by increasing instability in the Middle East and Beijing's plans for additional stimulus.

U.S. crude CLc1 fell 0.49% to $67.24 a barrel and Brent LCOc1 fell to $70.87 per barrel, down 0.28% on the day.

Gold prices touched a record high as the safe-haven metal benefited from a flare-up of geopolitical tensions and lingering uncertainties about Trump's tariff plans.

Spot gold XAU= rose 0.98% to $3,031.00 an ounce. U.S. gold futures GCc1 rose 0.86% to $3,025.80 an ounce.