By Caroline Valetkevitch
NEW YORK (Reuters) - U.S. stocks extended their recent rally while the dollar held steady on Tuesday ahead of the U.S. Federal Reserve's expected interest rate hike and potential changes in its inflation and growth outlook.
All three major U.S. stock indexes hit record closing highs and the Dow ended fewer than 100 points from the 20,000 mark. It breached 19,000 only last month in the post-U.S. election move up. Gains in technology and energy companies boosted U.S. stocks on Tuesday.
Uncertainty over whether the Fed would signal a slow or fast pace of rate increases following its meeting kept the dollar steady against a basket of currencies.
The Fed on Wednesday is widely expected to hike interest rates for the first time since last December and only the second since the 2007-2009 financial crisis, but investors will be examining the central bank's statement and economic forecasts for any signs of how policymakers think President-elect Donald Trump's election affects the outlook for growth and inflation.
The question is, "how much can their forecast change. In reality, the forecast can't change that much because the data hasn't changed that much," said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut. Yet, "the stock market is pricing in a big uptick in growth next year.
"Tomorrow what will be key is how the market digests that forecast."
The U.S. stock market's rally has been driven largely by hopes of better U.S. economic growth under President-elect Donald Trump. The Dow has climbed about 9 percent since the election.
The Dow Jones industrial average was up 114.78 points, or 0.58 percent, to 19,911.21, the S&P 500 gained 14.76 points, or 0.653977 percent, to 2,271.72 and the Nasdaq Composite added 51.29 points, or 0.95 percent, to 5,463.83.
The S&P technology and energy indexes each gained more than 1 percent.
"I think what we're seeing is the rally broaden out a little bit beyond the (small cap) Russell 2000 and the financial sector," O'Rourke said, adding that technology has not gained as much as other sectors since the Nov. 8 election. In Europe, stocks were helped by gains in banks after Italy's largest lender unveiled a 13 billion-euro share issue.
UniCredit launched Italy's biggest share issue to clean up its balance sheet and boost profitability, the latest move to strengthen the Italian banking sector, which has been clouding the outlook for European stocks.
MSCI's all-country world stock index was up 0.7 percent, the pan-European STOXX 600 share index ended up 1.1 percent.
The U.S. dollar index was last up 0.04 percent at 101.070. The dollar was up 0.15 percent against the yen at 115.19 yen after hitting a 10-month high of 116.12 yen on Monday.
In the U.S. bond market, shorter-dated U.S. Treasury yields rose to their highest levels of the year, with 2-year notes touching over 6-year highs.
U.S. two-year notes fell 2/32 in price to yield 1.174 percent, while benchmark U.S. 10-year note prices fell 1/32 and its yield rose to 2.482 percent.
Oil prices ended little changed, with support from OPEC's plan to limit production offset by the International Energy Agency's assessment that it believes OPEC produced about 34.2 million barrels a day in November, or an additional 500,000 bpd from OPEC's estimate.
U.S. crude futures settled up just 15 cents at $52.98 a barrel, while Brent crude ended up three cents to $55.72.
In other commodity markets, gold edged lower ahead of the expected Fed hike, with spot gold down 0.6 percent at $1,155.65 an ounce.
For Reuters' new Live Markets blog on European and UK stock markets, see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Editing by Nick Zieminski and Alistair Bell)