GLOBAL MARKETS-Dollar up; stocks, commodities down eyeing Fed

* Dollar gains as investors reduce short bets

* Uncertainty over size of Fed economic stimulus

* Fed may buy few hundred billion dollars of bonds--WSJ (Updates with European markets' close, prices, adds Argentine ADRs)

By Manuela Badawy

NEW YORK, Oct 27 (Reuters) - The dollar rose and stocks and commodities fell on Wednesday on doubts over how aggressively the Federal Reserve is going to attempt to stimulate the flagging U.S. economy.

Investors had been pricing in large-scale bond purchases by the Fed, which lifted equities, commodities and emerging market assets in recent weeks while the dollar fell because more Fed quantitative easing would lower the currency's value, at least in the short term.

"The dollar's slide since September has been pricing in aggressive price action by the Fed to around $1 trillion," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.

But market participants have begun to scale back expectations of the Fed's intentions. The Wall Street Journal said on Wednesday that the Fed is likely to unveil an asset-purchase program worth a few hundred billion dollars over several months. It said officials want to avoid a "shock and awe" approach in their announcement, expected next week. For details, see [ID:nTOE69Q02H].

"Some stabilization, Fed official comments and the Wall Street Journal article have resulted in investors' paring back those aggressive expectations. Given the price action, we can assume they are trimming those short dollar bets," Esiner said.

A Reuters survey on Oct. 8 showed U.S. primary dealers expected the size of the quantitative easing to be between $500 billion and $1.5 trillion.
For a survey on size of QE, click [ID:nNLL8LE6JH] For possible FOMC outcomes, click [ID:nN25168493]

The dollar was up against major currencies, with the U.S. Dollar Index <.DXY> up 0.47 percent at 78.072.

The euro was down 0.57 percent at $1.378. Against the Japanese yen, the dollar was up 0.28 percent at 81.63.

WORLD STOCKS, COMMODITIES PRESSURED

The uncertainty over the size and pace of quantitative easing dampened equities and commodity prices.

The Dow Jones industrial average <.DJI> was down 124.54 points, or 1.12 percent, at 11,044.92. The Standard & Poor's 500 Index <.SPX> was down 11.32 points, or 0.95 percent, at 1,174.32. The Nasdaq Composite Index <.IXIC> was down 12.80 points, or 0.51 percent, at 2,484.49.

"People care more about quantitative easing than anything else today," said Michael O'Rourke, chief market strategist at BTIG LLC in New York.

"The Fed lowering what it could do should put some pressure on the risk assets that have been trading with QE as a catalyst."

World stocks measured by MSCI All-Country World Index <.MIWD00000PUS> fell 1.23 percent and MSCI emerging market benchmark <.MSCIEF> lost 1.79 percent.

U.S.-listed shares of Argentine stocks surged following news that the president's husband and predecessor, Nestor Kirchner, had died. Transportadora de Gas Del Sur S.A. soared 11 percent to $4.41 while IRSA Investments and Representations Inc added 7.4 percent to $14.95.

Tokyo's Nikkei average <.N225> added 0.1 percent, helped by a softer yen.

Europe's FTSEurofirst 300 <.FTEU3> closed down 0.7 percent after U.S. data showing weakness in a category of U.S. durable goods orders and on uncertainty over the outcome of the Fed's Nov. 2-3 meeting.

U.S. Treasuries widened losses on news that sales of new U.S. single-family homes rose more than expected in September, while prices rose and the supply of homes on the market was the lowest in 42 years.

The benchmark 10-year U.S. Treasury note was down 10/32, with the yield at 2.6795 percent. The 2-year U.S. Treasury note was down 1/32, with the yield at 0.4065 percent. The 30-year U.S. Treasury bond was down 6/32, with the yield at 4.013 percent.

Gold prices fell $16.15, or 1.21 percent, to $1323.20 an ounce as the dollar rose. Gold typically falls when the dollar strengthens, and vice versa, as a firmer U.S. unit curbs the metal's appeal as an alternative asset. Like all dollar-priced commodities, it also becomes more expensive for other currency holders.

Crude oil fell $1.26, or 1.53 percent, to $81.29 per barrel. (Additional reporting by Nick Olivari, Ellen Freilich, and Ryan Vlastelica in New York; Editing by Kenneth Barry)