By David Randall
NEW YORK (Reuters) - World stock markets inched higher on Tuesday as investors looked ahead to whether the U.S. Federal Reserve will be able to raise interest rates much further amid turbulent markets and a weakening outlook for the global economy.
Steep declines in equity markets over the last two months have sapped investor confidence, spurring fund managers to predict global growth to weaken over the next 12 months, the worst outlook in a decade, Bank of America (NYSE:BAC) Merrill Lynch's December investor survey showed.
MSCI's world stock index rose 0.2 percent. The index has fallen 10 percent this year and is set for its worst year in a decade.
U.S. stocks were boosted by upbeat earnings and tech stocks. The Dow Jones Industrial Average rose 283.83 points, or 1.2 percent, to 23,876.81, the S&P 500 gained 22.54 points, or 0.89 percent, to 2,568.48 and the Nasdaq Composite added 65.32 points, or 0.97 percent, to 6,819.05.
Still, the benchmark S&P 500 index began the trading session almost 8 percent lower for December.
"We're facing the biggest December fall in U.S. stocks since 1931 and this is striking and worrying at the same time," said Chris Bailey, European strategist at international financial services firm Raymond James. "We are at a regime shift moment and the debate is how big that regime shift will be."
A speech by Chinese President Xi Jinping, which investors had hoped could lift morale, had little impact, with Chinese shares falling over 1 percent. Japan's Nikkei lost 1.8 percent.
In addition, the German Ifo economic institute's business climate index fell for the fourth month in a row to its lowest level in more than two years and Japan's government revised down its economic growth forecasts.
On Monday, U.S. President Donald Trump and his top trade adviser stepped up their criticism of the central bank's monetary tightening, raising investor anxiety.
Benchmark 10-year notes last rose 4/32 in price to yield 2.8444 percent, from 2.857 percent late on Monday.
Oil prices dropped 4 percent, weakening for a third consecutive session as reports of swelling inventories and forecasts of record U.S. and Russian output.
The dollar extended its falls against major currencies ahead of the Fed meeting. The dollar index, tracking it against six major peers, fell 0.14 percent, with the euro up 0.21 percent to $1.137.
"This year has been quite remarkable in the sense that pretty much all asset classes have been down, which is even worse than 2008 because during the (global financial crisis) we at least saw some safe havens - U.S. government bonds, gold - performing positively," said Stefan Keller, asset allocation strategist at Candriam in Luxembourg.
"At least in real terms, that's not the case today. This is indeed a huge challenge. Clearly it's in sharp contrast to last year's optimistic outlook."
