GLOBAL MARKETS-Dollar falls on Fed easing talk, stocks jump

* Dollar falls broadly after talk of large Fed stimulus

* Markets recover after surprise China rate hike

* Stocks rise, boosted by U.S. earnings, outlooks (Updates with European markets' close, details)

By Manuela Badawy

NEW YORK, Oct 20 (Reuters) - The U.S. dollar weakened on Wednesday as investors expected the Federal Reserve will soon offer additional stimulus to the economy, while stocks and commodities recovered after China's surprise interest rate hike.

The dollar fell across the board after talk the U.S. central bank plans to spend $500 billion in bond purchases over the next six months, with an open-ended commitment to do more in the next 18 months. Medley Global Advisors, a consulting firm, described the Fed's plans in a report, a source told Reuters. For details, see [ID:nLDE69J20L].

The prospect of an increase in dollar supply weakened the currency's value while it fueled a rally in equity markets. Such a development also will likely anger emerging economies contending with a flood of capital as investors chase higher yields.

The forex market is "in a bit of a gray area" that should persist at least through a weekend gathering of the G20 and the Fed's November meeting, Camilla Sutton, Scotia Capital currency strategist said. Fed officials are expected to announce plans to pump more money into the economy after their meeting.

"We think the dollar will end the year weaker, but for now, we're probably going to be in a period of more subdued trading until we get a firmer idea of where policymakers are headed," she said.

U.S. stocks rose as investors switched focus to positive corporate earnings from the Chinese rate hike.

China's move stoked fears among investors about further tightening in one of the global economy's main drivers and coincided with increased tensions over global currency policies before a meeting of Group of 20 finance ministers this weekend.

The Dow Jones industrial average <.DJI> was up 128.89 points, or 1.17 percent, at 11,107.51. The Standard & Poor's 500 Index <.SPX> was up 12.66 points, or 1.09 percent, at 1,178.56. The Nasdaq Composite Index <.IXIC> was up 27.17 points, or 1.11 percent, at 2,464.12.

Boeing Co shares rose 2.3 percent after the aerospace company and Dow component posted a quarterly profit that beat Wall Street's expectations and boosted its full-year forecast. [ID:nN19134234].

Delta Air Lines and US Airways Group also jumped after they reported strong profits.

The MSCI all-country world index <.MIWD00000PUS> was up 1.1 percent while Europe's FTSEurofirst 300 <.FTEU3> finished up 0.3 percent, led by strength in mining stocks, although mixed company earnings and massive UK government spending cuts capped gains.

Japan's Nikkei <.N225> closed down 1.65 percent, with exporters shaken by fears of slowing Chinese growth.

DOLLAR SLIPS

Investors resumed selling the dollar against most currencies on Wednesday, after the Medley report suggested the Fed planned to boost growth by pumping more money into the economy, possibly as soon as next month, though there has been less certainty about how much it would spend.

The dollar was down against major currencies, with the U.S. Dollar Index <.DXY> off 1.28 percent at 77.18.

The report accelerated a dollar sell-off that began overnight. The euro was up 1.06 percent at $1.3959. It hit an 8 1/2-month high above $1.41 last week. Against the Japanese yen, the dollar was down 0.63 percent at 81.05 after hitting a 15-year low beneath 81 yen.

The Medley report confirmed comments made on Tuesday by a Fed official that $100 billion a month in bond purchases may be appropriate, providing traders an incentive to push the dollar lower. [ID:nN19258951]

The advisory firm's report also revived buying of U.S. government debt, pushing up their prices and flattening much of the yield curve.

The benchmark 10-year U.S. Treasury note was up 4/32, with the yield at 2.4662 percent. The 2-year U.S. Treasury note was up 1/32, with the yield at 0.356 percent. The 30-year U.S. Treasury bond was up 15/32, with the yield at 3.887 percent.

In energy and commodities, crude oil rose $1.63, or 2.05 percent, to $81.12 per barrel, and gold prices rose $8.35, or 0.63 percent, to $1,342.80. (Additional reporting by Steven C. Johnson, Daniel Bases, Rodrigo Campos and Richard Leong in New York; Editing by Kenneth Barry)