* Nasdaq hits intraday record high
* Fed flags possible Dec rate hike, outlook more dovish
* Dollar falls (Adds European shares' close, updates prices)
By Caroline Valetkevitch
NEW YORK, Sept 22 (Reuters) - World stock indexes advanced and the Nasdaq hit a record high on Thursday while bonds rallied, a day after the U.S. Federal Reserve signaled an increasingly cautious approach to future U.S. interest rate increases.
The dollar fell to its lowest in a week against a basket of major currencies as investors sold the greenback following the Fed's reduction of longer-term interest rate expectations.
The Fed said it could hike rates by year-end as the labor market improved further, but scaled back the number of rate increases expected in 2017 and 2018. It also reduced its longer-run rate forecast to 2.9 percent from 3 percent. left investors feeling that any monetary policy tightening would be leisurely at best. Market pricing for a December move rose only a fraction to 59.3 percent from 59.2 percent, according to CME Group's FedWatch tool.
"The Fed probably appeared less hawkish than what the markets had expected," said Ryan Larson, head of equity trading at RBC Global Asset Management in Chicago. "I think the market continues to be focused on the Fed pushing a hike for later as a good thing rather than bad."
The Dow Jones industrial average .DJI was up 125.33 points, or 0.69 percent, to 18,419.03, the S&P 500 .SPX gained 15.04 points, or 0.7 percent, to 2,178.16 and the Nasdaq Composite .IXIC added 44.34 points, or 0.84 percent, to 5,339.52.
MSCI's all-country world stock index .MIWD00000PUS was up 1.1 percent, while Europe's STOXX 600 .STOXX closed up 1.6 percent.
In the bond market, benchmark U.S. yields hit near two-week lows on revived bets the Fed would raise rates slowly due to weak economic growth and inflation stuck below its 2-percent goal.
Benchmark 10-year Treasury notes rose 12/32 in price for a yield of 1.627 percent, down 4 basis points from Wednesday. US10YT=RR dollar index .DXY dropped 0.3 percent to 95.380. prices climbed for a second day on U.S. government data that showed a surprising crude inventory drop, but the advance was limited by trader worries that OPEC was not nearing an agreement to reduce a global glut. crude CLc1 was up $1, or 2.2 percent, at $46.34 a barrel, while Brent crude futures LCOc1 rose 65 cents, or 1.4 percent, to $47.48.
In other commodities, gold hit a two-week high, with spot gold XAU= last up 0.2 percent at $1,339.46 an ounce.
For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Global assets in 2016
http://reut.rs/1WAiOSC Currencies in 2016
http://link.reuters.com/tak27s Global interest rate cutting frenzy
http://reut.rs/24kleab
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