GLOBAL MARKETS-Wall St ends flat, euro up on euro-zone hopes

* U.S. stocks end flat in late bout of buying * Euro rises to two-month-high on euro-zone optimism * Sterling slips after Britain's GDP shrank unexpectedly * Commodity prices fall on fears of Asian economic tightening (Updates with U.S. markets' close, Nikkei stock futures)

By Manuela Badawy

NEW YORK, Jan 25 (Reuters) - U.S. stocks ended flat on Tuesday, overcoming most of the session's losses as bargain hunters bought equities late in the day, while the euro rose to touch a fresh-two-month high against the dollar.

The euro's rally was driven by increased optimism that Europe will be able to manage its debt crisis.

World stocks were pressured throughout the day after data showed Britain's economy unexpectedly contracted at the end of 2010, while fears of inflation in Asia hit commodity prices.

But on Wall Street, sentiment improved late in the day.

"There is more of a break trade, sort of a two steps up, one step back type trade in U.S. equity markets," said John Brady, MF Global's senior vice president for U.S. and global interest-rate products.

The blue-chip Dow Jones industrial average <.DJI> inched lower for the day after earlier touching an intraday high that was less than 15 points from the psychologically important 12,000 level. On Monday, the Dow also made a run toward 12,000 and then backed away.

The front-month futures contract for the Nikkei 225 stock index <0#NK:> trading in Chicago rose 30 points to 10,440.

U.S. crude oil futures fell $1.68, or nearly 2 percent, to settle at $86.19 a barrel, copper hit one-month lows and gold fell to its lowest in three months after India raised interest rates, saying inflation may stay high for longer than expected. [ID:nN25279633]

India's rate increase rattled investors already concerned by China's recent move to raise banks' required reserves and its two rate hikes since the start of 2010.

"There is increasing concern about rising interest rates in Asia," said Stephen Briggs, commodities analyst at BNP Paribas in London. "It's raising fear that liquidity in the global markets will continue to shrink."

U.S. government bonds rose on a report that President Barack Obama would propose a freeze on discretionary non-security spending in his State of the Union address, which will be broadcast live on television on Tuesday night.

An index of pan-European shares <.FTEU3> ended down 0.6 percent after data showed a 0.5 percent decline in UK gross domestic product in the fourth quarter as Britain's government embarks on deep spending cuts. For details, see [ID:nLDE70O19B] An index of world stocks <.MIWD00000PUS> was down 0.09 percent.

LATE SHIFT ON WALL ST

U.S. stocks reversed losses in a late flurry of buying and ended little changed as optimism about overall earnings offset disappointment in results from blue chips 3M and Johnson & Johnson.

The Dow Jones industrial average <.DJI> dipped 3.33 points, or 0.03 percent, to end at 11,977.19. But the Standard & Poor's 500 Index <.SPX> rose 0.34 of a point, or 0.03 percent, to finish at 1,291.18. The Nasdaq Composite Index <.IXIC> gained 1.70 points, or 0.06 percent, to close at 2,719.25.

The Conference Board, a U.S. industry group, said its index of consumer confidence jumped in January to the highest since May 2010. [ID:nN25261699]

The euro rose to a fresh two-month high above $1.37, extending a six-day run of gains against the dollar as investors hoped that European authorities will do enough to contain the debt crisis in the months ahead.

The euro rose to $1.3705 , its best level on the day and its highest since late November, before easing to $1.3695, up 0.4 percent.

The euro's volatility throughout the day was partly due to the 440-billion-euro fund, the European Financial Stability Facility's (EFSF) inaugural debt issue.

Speculation that the new issue would be massively oversubscribed boosted the euro in early trade, but those gains were eroded when investors who built up euros to buy EFSF debt sold them back.

The dollar index <.DXY>, which measures the dollar's performance against a basket of major currencies, slipped 0.19 percent. Sterling slid 1.01 percent to $1.5833 late in the New York day.

Against the Japanese yen, the dollar was down 0.35 percent at 82.18 after U.S. bond yields extended losses following solid demand for the sale of $35 billion of two-year notes. Lower yields make dollar-denominated assets less attractive.

The benchmark 10-year U.S. Treasury note climbed 19/32, with the yield at 3.3303 percent. The 2-year U.S. Treasury note was up 2/32, with the yield at 0.584 percent. The 30-year U.S. Treasury bond was up 35/32 -- slightly more than a full point -- with the yield at 4.491 percent.

The Reuters/Jefferies CRB Index <.CRB>, a global benchmark for commodities, was down 1.54 percent on worries about economic tightening in Asia.

Spot gold prices fell $2.15, or 0.16 percent, to $1,332.10 an ounce. Copper , which is used in power and construction, hit a one-month low -- falling 2.77 percent to $9,265 a tonne, while tin hit a record high on supply concerns. (Reporting by Manuela Badawy; Additional reporting by Angela Moon, Wanfeng Zhou, Barani Krishnan and Ellen Freilich; Editing by Jan Paschal)