* Europe, U.S. stocks rally on energy lift
* Oil edges off multi-year lows
* Dollar advances after inflation data
(Adds open of U.S. markets, byline, dateline; previous LONDON)
By Chuck Mikolajczak
NEW YORK, Dec 15 (Reuters) - Global equity markets rallied
on Tuesday as oil prices moved away from multi-year lows, though
investors remained mindful of the possibility for more
volatility ahead of a widely anticipated increase in U.S.
interest rates later this week.
Oil reversed early falls as bargain hunters moved in after
crude dropped to its lowest level since December 2008 in the
prior session. The bounce helped lift equities in both the U.S.
and the Europe.
The S&P energy index .SPNY rallied 2.4 percent as the best
performing of the 10 major S&P sectors, putting it on pace for
its biggest daily percentage gain in a month.
"I would use the word 'relief' that oil is not down, that is
a good thing," said Andre Bakhos, managing director at Janlyn
Capital LLC in Bernardsville, New Jersey.
"What the Fed does and says tomorrow could change everything
on a dime."
The Fed is scheduled to begin its two-day policy meeting on
Tuesday at 1:00 p.m. EST (1300 GMT).
The first U.S. rate rise since 2006 is largely priced in, as
traders see an 83-percent chance the central bank will lift its
targeted rate range to 0.25 percent to 0.50 percent from the
current zero to 0.25 percent range, according to CME Group's (O:CME)
FedWatch program.
The Dow Jones industrial average .DJI rose 204.58 points,
or 1.18 percent, to 17,573.08, the S&P 500 .SPX gained 25.3
points, or 1.25 percent, to 2,047.24 and the Nasdaq Composite
.IXIC added 62.37 points, or 1.26 percent, to 5,014.60.
MSCI's all-country world index .MIWD00000PUS rose 0.9
percent, while the pan-European FTSEurofirst 300 .FTEU3 index
rallied 2.8 percent, on track for its best day since Oct. 5.
Brent crude LCOc1 climbed 1.3 percent at $38.40 after
falling as low as $36.33 a barrel on Monday, its weakest since
December 2008. U.S. crude CLc1 advanced 1.9 percent at $37.
Prices have been falling for weeks due to a global glut of
oil and, in the northern hemisphere, a mild start to winter.
Low oil prices and worries about higher interest rates have
unnerved investors through the energy-dominated U.S. high-yield
corporate bond markets.
Massive amounts of debt sold by energy and mining companies
since 2010, much of it in the form of high-yield or 'junk' bonds
from small shale gas firms, is facing a wave of credit rating
downgrades, and defaults are rising.
Losses this year, as measured by the iShares iBoxx High
Yield Corporate Bond ETF HYG.P , are more than 10 percent, in
what some investors see as an echo of the 2008 credit crisis.
The ETF was up 1.5 percent to $79.98 on Tuesday.
Benchmark 10-year Treasury notes US10YT=RR lost 13/32 in
price to yield 2.2711 percent.
The dollar index .DXY , which measures the U.S. currency
against a basket of its peers, climbed 0.6 percent to 98.193
after data showed inflation pressures rose in the United States
in November, further cementing expectations for a hike in
interest rates by the Fed. The euro EUR= lost 0.6 percent to
$1.0926.
Gold XAU= edged down 0.2 percent at $1,061.20 an ounce.