LONDON European shares consolidated near two-year highs on Tuesday and oil prices steadied as investors seeking evidence of a lasting economic recovery awaited U.S. data and a Federal Reserve policy decision later in the week.
The euro was also hovering near an 11-month high against the dollar while German bond prices rose, but traders said this mainly reflected some bargain hunting after recent sharp falls as demand for safe haven assets diminished.
Accommodative monetary policies by the world's major central banks and signs of an end to the euro zone crisis have encouraged investors back into riskier asset markets this year, despite expectations of only modest global economic growth.
Analysts say the current pause is likely to be only temporary given the demand by investors for higher returns after years of holding safe but low yielding assets.
"The markets are currently overbought after one of the longest winning streaks in years and we are due for a period of consolidation. This will probably not be too violent as there is a lot of money waiting at the sidelines," Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, said.
Gains across Asian markets on Tuesday, led by a big rally in Australian shares, helped to lift MSCI's world equity index by 0.2 percent to near a 20-month high.
The FTSE Eurofirst 300 index of top European shares was virtually flat, although it hit a 23-month high on Monday. Shares markets in London, Paris and Frankfurt .GDAXI were all little changed.
U.S. stock futures pointed to a firmer start on Wall Street where the benchmark S&P 500 index snapped an eight-day run of gains on Monday which had taken it to its highest levels in more than five years.
"We have seen 9 weeks of retail buying of equities after four years dominated by outflows," Peter Sullivan, Head of European Equity Strategy at HSBC said in a research note.
Sullivan said these new equity flows were going primarily into emerging markets and Europe but they did not yet represent a switch from bonds to equities. "Bond flows remain positive, they are just at a reduced level," he said.
Investors now await the outcome of the two-day Federal Reserve policy meeting which begins later in the day.
The Fed is not expected to change its stance after deciding only in December to loosen conditions further. However, investors are watching to see if changes in the membership of the policy-setting committee for 2013 could signal a shift in the future.
"At their last meeting they talked about potentially slowing the rate of purchases within QE3 (quantitative easing)," said Nic Brown, head of commodity research at Natixis. "If we get any more talk like that, it would be an interesting signal that the Fed thinks that there is more than enough liquidity in the system."
The first estimate of U.S. fourth-quarter gross domestic product is also will be released on Wednesday, followed by the non-farm payrolls report on Friday.
In Europe investors are looking to Spanish GDP data and Italian and German debt auctions on Wednesday, and the first big day of European earnings on Thursday to confirm the improving outlook for region.
Official data on China's giant manufacturing and services sectors due on Friday will also be important, especially for commodities markets.
Brent crude and U.S. oil were edging higher on Tuesday but, in line with equities, gains were limited with Brent crude up 16 cents to $113.64 a barrel and U.S. crude rising 44 cents to $96.88.
Gold snapped a four-day losing streak to be around $1,662 an ounce, but any hint the Fed is considering an end to its loose monetary policy would probably send the precious metal down.
Copper on the London Metal Exchange rose to $8,066 a tonne, up 0.4 percent from a close of $8,030 on Monday.
The euro was at $1.3456, not far from an 11-month high of $1.3480 hit on Friday, which was the highest level since February last year.
The common currency gained a big boost at the end of last week from news of early repayments by euro zone banks of three-year loans to the European Central Bank, which suggested that parts of the banking system may be on the mend.
The euro, however, faces a series of major resistance levels near $1.35, including its 2012 high of $1.34869.
Meanwhile the market for German government bonds was stabilising after the positive news on the European banks and some better than expected U.S. data had sparked a sharp selloff on Monday.
Ten-year German yields were 1.6 basis points lower at 1.68 percent, according to Reuters data, just off Monday's 4-1/2 month high of 1.712 percent and almost 40 basis points higher since the end of last year.
(Additional reporting by Harpreet Bhal)