Dollar holds firm before Fed minutes, stocks rise

By Nigel Stephenson

LONDON (Reuters) - The dollar held on to big gains on Wednesday before minutes of the U.S. Federal Reserve's latest meeting, while European shares followed Asian stocks higher.

Relative calm in the standoff between the United States and North Korea also lifted investors' appetite for riskier assets.

Metals markets were buoyant, with the price of zinc, used to galvanize steel, hitting its highest in a decade on Chinese infrastructure demand.

European shares rose half a percent in early trade.

The Fed releases the minutes of its July policy meeting at 1800 GMT, after European markets have closed, and will be pored through for clues to how the debate over the policy outlook is developing.

The U.S. central bank kept interest rates unchanged last month and said it expected to start winding down its massive holdings of bonds, bought in an effort to boost the economy, "relatively soon".

The pan-European STOXX 600 index (STOXX) rose 0.8 percent, led by basis resources companies (SXPP) and energy companies as metals and oil prices rose.

Germany's DAX index (GDAXI) rose 0.7 percent and Britain's blue-chip FTSE 100 (FTSE) gained 0.7 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) gained 0.3 percent. South Korea's KOSPI index (KS11), reopening after a holiday on Tuesday, ended the day 0.6 percent higher.

North Korean leader Kim Jong Un has delayed a decision on firing missiles towards Guam while he waits to see what the United States does, the North's state media reported on Tuesday, while the United States said any dialogue was up to Kim.

Japan's Nikkei (N225) lost 0.1 percent, with some investors unnerved by the possible impact on Japanese carmakers of talks beginning on Wednesday between the United States, Canada and Mexico intended to modernize the North American Free Trade Agreement.

Data on Tuesday, showing U.S. retails sales recording their biggest increase in seven months slightly boosted market expectations the Fed will raise rates for a third time this year and lifted U.S. government bond yields and the dollar.

The U.S. currency dipped 0.1 percent on Wednesday against a basket of major peers (DXY) but held close to three-week highs hit on Tuesday.

"The North Korea missile fears seems to be abating for now and if the recent bunch of strong U.S. data translates into higher inflation, then markets will start pricing more interest rate increases from the Fed in the coming months," said Ulrich Leuchtmann, an FX strategist at Commerzbank (DE:CBKG) in Frankfurt.

The euro was 0.2 percent stronger at $1.1708 . It fell earlier to as low as $1.1692 after a Reuters report, citing two sources familiar with the situation, that European Central Bank chief Mario Draghi would not deliver a new policy message at next week's gathering of central bankers in Jackson Hole, Wyoming.

Many in markets have been expecting Draghi to start charting a course out of its stimulus program.

The yen, which rose as tension over the Korean peninsula intensified last week, fell 0.2 percent to 110.91 per dollar .

Ten year U.S. Treasury yields (US10YT=RR) were 1 basis point higher at 2.27 percent, having touched a one-week high of 2.28 percent on Tuesday.

German equivalents rose marginally to 0.43 percent.

ZINC, OIL

Zinc rose almost 2 percent to as high as $3,018 a tonne, its highest since late 2007.

"There (was) a fair level of scepticism at the start of the year when China's infrastructure projects were announced but we're seeing much better-than-expected growth in fixed asset investment," said analyst Daniel Hynes of ANZ in Sydney.

"That resetting of expectations is resulting in that much more positivity to the sector."

Gold fell with the dollar relatively strong before the Fed minutes. It last stood at $1,270 an ounce, down 0.1 percent .

Brent crude oil (LCOc1) rose 45 cents to $51.26 a barrel on a reduction in U.S. stockpiles.