* Dollar could post worst month v basket since 2011
* Dovish Fed expected, statement due 1800 GMT
* MSCI AxJ stocks up 0.3% led by China
* Asian stock markets: https://tmsnrt.rs/2zpUAr4
By Tom Westbrook and Suzanne Barlyn
SINGAPORE/NEW YORK, July 29 (Reuters) - The U.S. dollar
hovered just above a two-year low on Wednesday, while stocks
struggled, as growing worries about the U.S. economy had
investors cautious and looking to Congress and the Federal
Reserve for a boost.
The Fed is expected to strike a dovish stance at its policy
review later in the day and perhaps open the door to a higher
tolerance for inflation - something dollar bears think could
squash real yields and sink the currency even further.
A $1 trillion U.S. fiscal rescue package is also at an
impasse as a Friday deadline to extend unemployment benefits
looms. MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS rose 0.1% as gains in China offset small losses
elsewhere. Japan's Nikkei .N225 was down 0.8% on a rising yen
and weak start to corporate earnings season. .T
Against a basket of currencies =USD the dollar wallowed
just 0.3% above a two-year low hit a day ago. It has lost 3.7%
in July so far and is headed for its worst month in nine years.
Gold XAU= steadied around $1,960 an ounce, pulling back
from a $1,980 high on Tuesday but still having gained nearly
$150 in eight sessions. GOL/ S&P 500 futures ESc1 were flat.
The Fed's forward guidance probably determines the next move
and the extension of several emergency lending facilities on
Tuesday fuelled anticipation of a particularly dovish tone.
"Some pockets of the market are looking for the forward
guidance to be a bit bolder in a dovish direction," said Imre
Speizer, currency analyst at Westpac in Auckland. "If we don't
get that, you may well get a small rebound in the dollar."
The Fed publishes its interest rate decision, which is not
expected to change, at 1800 GMT and Chair Jerome Powell holds a
press conference half an hour later.
The bond market was also in a cautious mood ahead of the
meeting, having retraced a selloff on Tuesday to leave benchmark
U.S. 10-year yields US10YT=RR at 0.5823%. US/
SHOW ME THE MONEY
Besides the Fed, the other focus is on political wrangling
over the next U.S. fiscal package, which weighed on Wall Street
overnight where the S&P 500 .SPX fell 0.6%. .N
Republicans' $1 trillion proposal includes cutting a weekly
$600 unemployment benefit, which expires on Friday, to $200 just
as cracks emerge in the economic rebound.
U.S. consumer confidence fell by more than expected this
month, as COVID-19 infections flared. The Democrats are pressing for a larger spending commitment,
while President Donald Trump also said he didn't like elements
of the Republican plan, adding to the sense of confusion.
"This is a big deal - there's 30 million people unemployed
and so much of U.S. GDP is consumer spending," said Chris
Brankin, CEO of brokerage TD Ameritrade Singapore.
"Markets are hopeful that some type of extension gets
done...even if it's reduced - if you just cut if off wholly
you'd see significant volatility in the markets."
Elsewhere in currencies, the Australian dollar AUD=D3
eased to $0.7164 after second quarter consumer prices fell by
the most on record, cementing views interest rates would stay
low for a long time to come. The euro EUR=EBS was steady at $1.1723 while the yen
JPY= was testing a new four-month top at 105.09 per dollar.
Copper prices climbed back towards a two-year high hit two
weeks ago, on hopes that global stimulus would help industrial
demand. MET/L
Oil prices steadied after a surprise drop in U.S.
inventories pointed to energy demand, even as virus infections
surge. O/R
Brent crude futures LCOc1 were last up 0.2% at $43.29 per
barrel and U.S. crude was flat at $41.03 a barrel.