* U.S. shares dip in choppy trade after day-earlier rally
* Dollar eases from highs after four sessions of gains
* U.S. crude falls, dips below $40 a barrel (Updates with U.S. markets; changes dateline from LONDON)
By Lewis Krauskopf
NEW YORK, Nov 19 (Reuters) - Key stock markets in Europe and Asia rallied on Thursday as expectations built that the U.S. Federal Reserve will hike interest rates next month, while the U.S. dollar retreated after four sessions of gains.
U.S. stock indexes fell slightly in choppy trading after a strong rally in the previous session, while U.S. crude dipped below $40 a barrel before rebounding.
U.S. data showed fewer Americans filed for unemployment benefits last week, further supporting a view that the Federal Reserve will raise interest rates in December. urn:newsml:reuters.com:*:nL1N13E113
"This morning's data simply confirmed that the economic landscape is healthy enough for the Fed to continue with its desired timing for liftoff, which for now the market is expecting to be December," said Ian Lyngen, senior government bond strategist at CRT Capital in Stamford, Connecticut.
Futures traders on Thursday placed a 72-percent chance of the Fed raising rates next month, up from 68 percent following the release of the Fed minutes on Wednesday afternoon, according to the CME Group's FedWatch.
The Dow Jones industrial average .DJI fell 12.61 points, or 0.07 percent, to 17,724.55, the S&P 500 .SPX lost 3.46 points, or 0.17 percent, to 2,080.12 and the Nasdaq Composite .IXIC dropped 0.29 points, or 0.01 percent, to 5,074.92.
The healthcare sector .SPXHC weighed on the benchmark S&P 500 index after insurer UnitedHealth Group (N:UNH) UNH.N issued a weak forecast.
The pan-European FTSEurofirst 300 index .FTEU3 climbed 0.4 percent, helped by a jump in shares of food and facilities group Sodexo EXHO.PA , which said it would cut costs to cope with a volatile global economy. urn:newsml:reuters.com:*:nL8N13E27A
Markets in London .FTSE and Frankfurt .GDAXI were up 0.8 percent and 1.1 percent, respectively. Japan's Nikkei .N225 rose 1.1 percent, and an index of major global markets rose 0.7 percent.
The U.S. dollar index .DXY , measured against a basket of currencies, was off 0.6 percent after hitting a seven-month high a day earlier. The euro rose EUR= 0.6 percent against the dollar.
"That the dollar is lower signals that this outcome (of the December Fed meeting) is increasingly discounted, particularly in the wake of recent, very heavy USD buying," said Todd Elmer, Citi's Asian head of G10 FX strategy.
Yields on longer-dated Treasuries fell as investors braced for the Fed to gradually raise rates after December.
Benchmark 10-year Treasury US10YT=RR prices rose 7/32 for a yield of 2.2447 percent, while the price for the 30-year note US30YT=RR rose 24/32 for a yield of 3.0040 percent.
U.S. crude CLc1 was down 1 percent at $40.29 a barrel, after dipping below $40 for a second day, with rising U.S. stockpiles serving as the most visible evidence of oversupply in oil markets. Benchmark Brent crude LCOc1 rose 0.5 percent to $44.37 a barrel.
"Ultimately the focus will return to the balance of demand relative to supply, and until inventory data provides evidence of a tighter supply, the path of least resistance will be lower," CMC Markets chief market analyst Michael Hewson said.
Spot gold XAU= rose 1.1 percent, rebounding from near six-year lows.
"I think this is pre-Thanksgiving week short-covering which has its roots in the Fed minutes yesterday," said Simon Weeks, head of precious metals at the Bank of Nova Scotia.
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http://link.reuters.com/dub25t Currencies vs dollar
http://link.reuters.com/tak27s Commodities performance
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