GLOBAL MARKETS-Battered dollar steadies, world stocks near record highs as Fed rate decision looms

By Dhara Ranasinghe

LONDON, Jan 28 (Reuters) - The dollar found its footing on Wednesday, having sold off sharply after U.S. President Donald Trump seemed to shrug off its recent weakness, while upbeat earnings kept world stocks near record highs before a Federal Reserve rate decision.

The U.S. currency nudged off four-year lows but sentiment remained fragile following the sharpest selloff since Trump's tariff blitz rocked markets last April.

European share markets fell .STOXX, while U.S. stock futures ESc1, NQc1 pointed to a positive open for Wall Street and Japan's blue-chip Nikkei nudged up .N225. The MSCI World Stock Index hovered at record highs .MIWD00000PUS.

"Last week when there seemed to be a flight from the U.S. in general, you had equities falling, Treasuries taking hits, and the dollar falling. Now it's more of a dollar story," said Jan von Gerich, Nordea chief markets analyst.

The Fed is expected to hold rates steady at a meeting overshadowed by a Trump administration criminal investigation of U.S. central bank chief Jerome Powell, an evolving effort to fire Fed Governor Lisa Cook, and the coming nomination of a successor to Powell in May.

"The most interesting thing about the Fed tonight is that Powell could now say something more on this political pressure, because he's refrained from all of that so far," von Gerich said.

ON FX WATCH

The dollar index =USD, which measures the U.S. currency against six major rivals, was 0.37% higher at 96.27 after dropping more than 1% on Tuesday to hit a four-year low.

Trump said on Tuesday the value of the dollar was "great", when asked whether he thought it had declined too much.

While that view was not new, traders took this as a signal to intensify selling pressure on the dollar at a time when markets are bracing for possible coordinated currency intervention by U.S. and Japanese authorities to stabilise the yen.

The dollar's dive hoisted the euro EUR= briefly above $1.20 for the first time since 2021, sent the Australian dollar AUD= temporarily above 70 cents to a three-year high, lifted gold to a new peak and boosted commodity prices - which are largely denominated in dollars. FRX/

"Despite the falls in the dollar over the past 12 months, it was coming from a very rich level and even today is not particularly cheap," said Guy Miller, chief market strategist at Zurich Insurance Group.

"Consequently, I don’t feel the administration is in any rush to try and arrest the decline."

European Central Bank policymakers meanwhile flagged growing concerns over the euro's quick appreciation against the dollar, warning that it could drag inflation down even as price growth is already set to undershoot the ECB's 2% target.

EARNINGS APLENTY

ASML, the world's largest supplier of computer chip equipment, reported stronger-than-expected bookings for the fourth quarter, highlighting resilient AI demand.

Its shares rallied 5%, outperforming a generally flat European market.

On Wall Street, a day of big tech earnings awaits, with Meta META.O and Tesla TSLA.O reporting after the close.

The weaker dollar filtered through to other assets, helping gold XAU= strike a record above $5,380 an ounce and benchmark Brent crude futures LCOc1 to hit a four-month high just above $68 a barrel.

In Asia, hotter-than-expected inflation in Australia in December has driven expectations of a rate hike as soon as next week, with ANZ and Westpac switching rate forecasts after the data release to leave all of Australia's "Big Four" banks predicting a hike.

Indonesia's equity market dived 7% after index provider MSCI MSCI.N said it was concerned about opaque ownership and trading and halted updates to Indonesian entries in its products, which are tracked by global investors.