GLOBAL MARKETS-Stocks, dollar rise slightly before Fed release

* Global stocks rise to 12-month peak before paring gains

* Dollar index edges higher but is still near 1-year low

* Oil drops $3 a barrel on surprise U.S. inventory build

* Bonds fall after 5-year sale, ahead of Fed statement (Updates with U.S. markets activity, changes byline, dateline; previous LONDON)

By Herbert Lash

NEW YORK, Sept 23 (Reuters) - Global stocks edged higher and the U.S. dollar firmed slightly from near a one-year low on Wednesday as investors awaited the end of a Federal Reserve meeting expected to keep U.S. interest rates at record lows.

The price of U.S. Treasuries fell after an auction of $40 billion in new five-year notes met with some reservation among investors. Overall demand was solid, but only after a steep price discount that left the high yield above expectations.

Euro zone government bonds mostly moved up after stocks retreated from session highs that pushed global equity markets to a fresh high of almost 12 months. For more see [ID:nN23419834] and [ID:nLN553626].

The MSCI all-country world index <.MIWD00000PUS> climbed to 292.08 before paring some gains to be up 0.03 percent.

Oil dropped 4 percent to below $69 a barrel at one point after U.S. government oil inventory data showed a surprise jump in crude and products stocks, highlighting the fragile state of demand in the world's largest energy consumer. [ID:nSP519601]

The euro fell to session lows against the dollar after a French government official said France was worried about the euro zone currency's strength.

The euro dropped to $1.4733 , off a one-year high above $1.48 touched earlier. It was last at $1.4762, down 0.2 percent on the day. It has gained 5.6 percent so far in 2009.

European shares closed slightly higher, but energy stocks took the most points off the pan-European FTSEurofirst 300 <.FTEU3> index of top regional shares.

"The market is in a wait-and-see mode. Everyone is waiting for the Federal Reserve and the comments that are going to be made," said Philippe Gijsels, senior equity strategist at Fortis Bank.

Investors were on alert for signs that the Fed may curtail some of the programs that over the past year have injected trillions of dollars into the troubled banking system, and that was keeping exchange rate moves somewhat subdued.

Trading across markets was subdued ahead of the Fed's announcement expected at about 2:15 p.m. (1815 GMT).

Investors were focused on whether the Fed -- the U.S. central bank -- will signal changes to its asset purchases or monetary policy, programs that have injected trillions of dollars into a troubled banking system.

"People are watching for tweaks to their current programs, which would be market-moving, but I don't think they want to rattle the markets right now," said Jacob Oubina, senior currency strategist at Forex.com in Bedminster, New Jersey.

Traders also kept an eye on a Group of 20 summit, which begins on Thursday in Pittsburgh and is expected to call on countries to maintain economic stimulus plans, a move which could give a boost to riskier assets. [ID:nLM242341]

U.S. equity markets rebounded from earlier lows, which came after the Energy Information Administration released data showing oil stockpiles unexpectedly rose last week. [ID:nLN618165]

At 1 p.m. (1700 GMT), the Dow Jones industrial average <.DJI> was up 17.84 points, or 0.18 percent, at 9,847.71. The Standard & Poor's 500 Index <.SPX> was up 1.55 points, or 0.14 percent, at 1,073.21. The Nasdaq Composite Index <.IXIC> was up 4.82 points, or 0.22 percent, at 2,151.12.

The Nasdaq was boosted by strength in semiconductors after Xilinx raised its second-quarter revenue outlook, citing "broad-based strength across nearly all end markets." [ID:nN23389063]

The EIA data pushed U.S. crude for November delivery down $2.62 to $69.14 a barrel, off an earlier low of $68.57.

London Brent crude fell $2.42 cents to $68.11.

Copper prices dipped, as investors fretted about signs of faltering demand from major consumer China. [ID:nLN502482]

The benchmark 10-year U.S. Treasury note was down 11/32 to yield 3.49 percent.

The dollar was up against a basket of major trading-partner currencies, with the U.S. Dollar Index <.DXY> up 0.07 percent at 76.174.

Against the Japanese yen, the dollar was up 0.26 percent at 91.37 from a previous session close of 91.130.

Spot gold prices fell $2.50 to $1,011.30 an ounce.

The MSCI benchmark of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> was up 0.2 percent and reached a 13-month high. (Reporting by Ryan Vlastelica, Steven C. Johnson and Chris Reese in New York and Joe Brock, Joanne Frearson and Ian Chua in London; Writing by Herbert Lash; Editing by James Dalgleish)