* ECB weighs up new easing
* Wall St flat, European stocks rally (Updates prices, changes comment, byline dateline)
By Rodrigo Campos
NEW YORK, Nov 25 (Reuters) - The dollar gained and the euro fell as far as a seven-month low on Wednesday following a Reuters report that the European Central Bank is weighing further easing monetary policy soon, including buying more debt and charging banks for hoarding cash.
The policy divergence between the ECB and the Federal Reserve, which is seen raising rates as soon as next month, helped propel the dollar index to its highest level since March, which pushed oil and commodity prices sharply lower.
European stocks rallied and Wall Street was little changed, leaving an MSCI measure of equities globally up 0.2 percent.
Data showed a decline in U.S. jobless insurance applications, while business investment is poised to rise. urn:newsml:reuters.com:*:nL1N13K0VM
The Dow Jones industrial average .DJI rose 5.95 points, or 0.03 percent, to 17,818.14, the S&P 500 .SPX gained 0.27 points, or 0.01 percent, to 2,089.41 and the Nasdaq Composite .IXIC added 11.17 points, or 0.22 percent, to 5,113.98.
European stocks rallied further and the FTSEuroFirst 300 index of leading shares was up 1.4 percent at 1,502.6 points .FTEU3 .
"The bias of the ECB is to continue to lean toward a policy of easing; with monetary policy being what it is it will continue to keep equities as the asset class of choice," said Matthew Kaufler, portfolio manager at Federated Investors in Rochester, New York.
"Putting aside geopolitical risk, European markets will continue to strengthen."
The backdrop of geopolitical risk was heightened earlier this week after Turkey shot down a Russian fighter jet.
"The geopolitical situation is the risk that keeps me up at night, as it continues to mutate in scary directions. It is clearly the wild card," said Kaufler.
Russia said on Wednesday it will send an advanced air defense system to reinforce its air base in Syria and consider cancelling a raft of joint business projects with Ankara. urn:newsml:reuters.com:*:nL8N13K1M1
Volatility could also spike as low volumes are expected out of the United States as it heads into the Thanksgiving holiday. U.S. equity markets will close on Thursday and operate a half day on Friday.
CENTRAL BANK ACTION LOOMS
At its meeting next week the ECB will ease policy in some way or another, according to economists polled by Reuters, many of whom say the bank cannot pull back now after signaling its intentions so clearly over the past month. urn:newsml:reuters.com:*:nL9N0WZ01K
Numerous alternatives are open, from snapping up the bonds of towns and regions to introducing a two-tier penalty charge on banks that park money with the ECB. urn:newsml:reuters.com:*:nL8N13I42U
Fed officials, on the other hand, are already sketching out positions for a post-liftoff debate that may blur the lines between inflation "hawks" and "doves." urn:newsml:reuters.com:*:nL3N13F4SQ
The euro hit a session low of $1.0565 but sharply reversed losses and was last down 0.1 percent at $1.0631; the dollar index reached a high of 100.17 and was last up 0.2 percent at 99.68.
The dollar strength, alongside concern over growing crude supply, pressured oil prices lower.
U.S. crude fell 1.2 percent to $42.37 per barrel and Brent dropped 1.5 percent to $45.42.
Prices of metals such as zinc and copper resumed their recent downtrend. MET/L
U.S. bond prices reached session highs earlier as shorter-dated German Bund yields DE2YT=TWEB DE5YT=TWEB fell to record negative levels following the Reuters report on expected ECB action.
Benchmark 10-year Treasuries notes US10YT=RR edged up 4/32 in price to yield 2.2289 percent, down 0.2 basis point from late on Tuesday.
The two-year yield US2YT=RR was unchanged at 0.9343 percent, which was within striking distance of the 5-1/2-year peak seen on Nov. 6. (Editing by Richard Balmforth and Meredith Mazzilli; To read Reuters Global Investing Blog click on http://blogs.reuters.com/globalinvesting; for the MacroScope Blog click on http://blogs.reuters.com/macroscope; for Hedge Fund Blog Hub click on http://blogs.reuters.com/hedgehub)