* Dollar index sits near lowest since June 2016
* U.S. stocks mostly higher
* VIX volatility gauge falls
* Oil jumps on Saudi pledge to cut exports (Adds late morning U.S. market activity; changes dateline, previous LONDON)
By Caroline Valetkevitch
NEW YORK, July 25 (Reuters) - A set of strong U.S. earnings reports sent the S&P 500 .SPX stock index to a record high on Tuesday, while the dollar held at its lowest since June 2016 ahead of a two-day Federal Reserve policy meeting.
Oil prices rose more than 2 percent, extended their recovery on a pledge by top OPEC producer Saudi Arabia to cut exports in August to help reduce a global crude glut. Fed beings its meeting on Tuesday to discuss its monetary policy stance and the timing of a long-awaited balance sheet reduction, a plan seen as likely to be detailed in September. No change to U.S. interest rates was expected.
There is a growing sense that the Fed will want to tread carefully amid signs of subdued U.S. inflation, and markets were reflecting that. They were also influenced by strong German economic data and Greece's first return to capital markets since 2014. dollar index .DXY , which measures the greenback against a basket of currencies, earlier hit its lowest level since June 2016 at 93.638.
It has fallen nearly 4 percent over the last month and more than 8 percent this year, and was last down 0.2 percent on the day at 93.811. euro EUR= rose to its highest since August 2015 and was just below a 2-1/2-year peak, boosted by a stronger-than-expected German business survey.
In the U.S. stock market, volatility was muted with the VIX index .VIX , Wall Street's so-called fear gauge, at a 23-year low. nIFRbCs1N9]
"It looks like earnings are coming in better than expected and that's giving the market a jump this morning," said Ken Moraif, senior adviser at Money Matters, a wealth management and investment firm.
Upbeat results from Caterpillar Inc (NYSE:CAT) CAT.N and McDonald's Corp (NYSE:MCD) MCD.N boosted the Dow and S&P 500. in Google parent Alphabet Inc GOOGL.O slid nearly 3 percent, weighing on the Nasdaq, after the company late on Monday flagged rising costs.
The Dow Jones Industrial Average .DJI rose 110.42 points, or 0.51 percent, to 21,623.59, the S&P 500 .SPX gained 9.13 points, or 0.37 percent, to 2,479.04 and the Nasdaq Composite .IXIC dropped 1.86 points, or 0.03 percent, to 6,408.95.
MSCI's index of stock markets across the world .MIWD00000PUS was up 0.3 percent, while European shares .FTEU3 rose 0.6 percent. Treasury yields rose as the gains in stocks as well as expectations that legislators in Washington may pass a healthcare overhaul helped reduce demand for safe-haven U.S. bonds.
Benchmark 10-year notes US10YT=RR were last down 13/32 in price to yield 2.30 percent, up from 2.25 percent on Monday. Senate is expected to vote on a repeal of the 2010 Affordable Care Act, which President Donald Trump and Republicans have vowed to undo.
There has been concern that the failure to pass healthcare legislation reflects discord that will make budget negotiations acrimonious, raising the risks that debt payments due in October may be delayed as the United States bumps up against the debt ceiling.
At the same time, investigations into Trump's pre-election links to Russia were deepening. Trump blasted the probes again in a pair of early morning tweets aimed at his attorney general. commodities, U.S. crude CLc1 jumped 2.9 percent to $47.69 a barrel, after closing up 1.25 percent on Monday.
Global benchmark Brent crude LCOc1 added 2.7 percent to $49.90, extending Monday's 1.1 percent rise.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Global assets in 2017
http://reut.rs/1WAiOSC Fed, ECB, BoJ balance sheets
http://reut.rs/1Th9HYJ Emerging markets in 2017
http://tmsnrt.rs/2ihRugV World FX rates in 2017
http://tmsnrt.rs/2egbfVh
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