U.S. stocks, dollar sluggish, all eyes on Fed meet this week

(Refiles to add GLOBAL MARKETS to headline; fix story title; wrapup number)

* European shares fall, Asian stocks at 2021 lows

* Bitcoin jumps on short-covering, Amazon speculation

* Govt bond yields post sizable drop

* Graphic: Global asset performance Link

* Graphic: World FX rates Link

By Koh Gui Qing and Tommy Wilkes

NEW YORK/LONDON, July 26 (Reuters) - U.S. stocks slipped from record highs on Monday and the dollar softened as investors cashed in on recent gains and turned their focus to the Federal Reserve's policy meeting, starting Tuesday, for clues on the outlook for monetary policy.

But declines in U.S. shares were slim compared with losses in Asia overnight, when MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slumped 2.1% to its lowest since December, hurt by concerns over tighter regulations in China.

In the United States, investors will closely parse comments by Federal Reserve Chair Jerome Powell on how the central bank will start tapering its asset purchases and any remarks he might make about the future of interest rates.

By late morning, U.S. shares were vacillating between modest gains and losses. The Dow Jones Industrial Average .DJI was flat at 35,062.39, the S&P 500 .SPX edged up 0.06% to 4,414.67, and the Nasdaq Composite .IXIC edged 0.04% lower to 14,830.320.

"Powell will likely highlight that the recovery is on track but COVID remains a key downside risk," analysts at Bank of America said in a note, adding that he will probably signal that any details about the Fed's tapering of asset purchases will be revealed in future meetings.

In a sign that risk appetite remained firm on Wall Street, bitcoin BTC=BTSP , the world's biggest cryptocurrency and sometimes an indicator of the demand for risk, soared 8.3% to $38,371.80 while ether ETH=BTSP jumped 6.35% to $2,333.26.

Speculation that online retailing giant Amazon might accept bitcoin as payment sparked the latest rally, and short sellers covering their positions added to the surge.

On the other hand, the U.S. dollar, which usually benefits when investors are seeking safety, softened as investors turned their attention to the Fed meeting.

The dollar index =USD lost 0.36% to 92.569 against a basket of six major currencies, but was not far off a 3-1/2-month high of 93.194 struck last week.

The dollar has gained nearly 4% from a low on May 25 as an improving U.S. economy bolstered the outlook for the Fed to start paring asset purchases as early as this year.

Indeed, investors have been pulling money out of Asian and emerging market stocks and adding to their U.S. holdings, attracted by forecast-beating earnings and a recovery in the U.S. economy.

Bond markets have remained remarkably untroubled by the prospect of eventual tapering. Yields on U.S. 10-year notes US10YT=RR have fallen for four weeks in a row - they slipped to a low of 1.221% on Monday before edging back up to 1.2779%.

But the drop in Treasury yields has done little to undermine the dollar, in part because European yields have fallen even further amid expectations of continued massive bond-buying by the European Central Bank.

Gold prices XAU= were subdued as investors stayed on the sidelines ahead of the Federal Reserve meeting, while oil prices weakened a touch, after having been buoyed by views that demand will remain strong as the global economy gradually opens and supply stays tight.

Brent LCOc1 slid 0.07% to $74.03 a barrel, while U.S. crude CLc1 declined 0.47% to $71.73.

Emerging markets Link
Global asset performance Link
Germany's Bund yield at 5-1/2 month low Link

Additional reporting by Wayne Cole in Sydney and Dhara
Ranasinghe in London; Editing by Nick Macfie, Alex Richardson
and Dan Grebler

Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.