* European shares weaken, Wall St set for lower open
* Focus turns to Fed meeting, U.S. GDP numbers
* Dollar drops to weakest since March 3
* Graphic: Global asset performance http://tmsnrt.rs/2yaDPgn
* Graphic: World FX rates http://tmsnrt.rs/2egbfVh
By Tommy Wilkes
LONDON, April 26 (Reuters) - Stocks gave up early gains on
Monday as confidence that economies are recovering rapidly was
overshadowed by caution over the speed of the market's rally and
ahead of a U.S. Federal Reserve policy meeting.
The start to the week was quiet as investors refrained from
taking on large positions before a two-day Fed meeting that will
begin on Tuesday and the impending release of quarterly gross
domestic product numbers for the United States.
Investors have remained ebullient in recent weeks, with Wall
Street hitting another intraday record high on Friday and
European shares not far off their own record highs.
But there was some limited selling on Monday in Europe.
The Euro STOXX 600 .STOXX was down 0.1% by 1050 GMT while
Germany's DAX .GDAXI lost 0.13%. Britain's FTSE 100 .FTSE
was flat.
Wall Street futures pointed to a weaker open ESc1 after
Friday's gains.
Asian shares rallied, however. MSCI's broadest index of
Asia-Pacific shares outside Japan .MIAPJ0000PUS reached its
highest since March 12, despite a late selloff in Chinese
shares.
That helped offset the falls in Europe and lift the MSCI
world equity index .MIWD00000PUS , which tracks shares in 49
countries, by 0.16%.
Stocks -- as well as most other risk assets -- are basking
in a massive rally. The MSCI world index has suffered only three
down months in the past 12 and is up nearly 5% this month and 9%
for the year as investors bet on a rapid post-pandemic economic
rebound turbocharged by vast government and central bank
stimulus.
Analysts, however, say stocks look a little overvalued and
that the rally will run into hurdles after setting such a
lightning pace and with so much of the economic recovery and
fiscal stimulus splurge already priced in.
"The real crux of the issue, however, is what's in the
price. The year-to-date rally has increasingly eliminated upside
to our targets," noted Andrew Sheets, a strategist at Morgan
Stanley.
"Across four major global equity markets (the U.S., Europe,
Japan and emerging markets), only Japan is currently below our
end-2021 strategy forecast."
BOLSTER CONFIDENCE
Still, recent data pointing to a solid global economic
recovery has bolstered confidence and limited any investor
nervousness, as have strong corporate earnings and the continued
rollout of COVID-19 vaccinations in developed economies.
Early April manufacturing activity indicators out last week
pointed to a robust start to the second quarter with data
hitting record highs in the United States and signalling an end
to Europe's double-dip recession.
First-quarter U.S. gross domestic product data due later in
the week is likely to show activity probably returned to
pre-pandemic levels, analysts said.
Most observers expect the Fed will stick to its pledge to
keep stimulus flowing easily until the economy has recovered
sufficiently and downplay the threat of rising inflation -- any
suggestion otherwise could knock confidence sharply.
"The equity market is happy that the Federal Reserve is
likely to continue with no new guidance on eventual tightening
of policy as it wants to react to outcomes rather than
anticipating them and believes that any inflationary rise in
coming months will prove transitory," said Steen Jakobsen, Chief
Investment Officer at Saxo Bank.
In currencies, the dollar -- which had benefited from rising
Treasury yields the past few months - fell against a basket of
currencies =USD to its weakest since March 3. Other major
currencies were little changed. JPY=EBS EUR=EBS
Bitcoin snapped a five-day losing streak with an 8.5% jump
BTC=BTSP . Cryptocurrencies fell on Friday on concern that U.S.
President Joe Biden's plan to raise capital gains taxes would
curb investments in digital assets.
Those tax proposals, while raising hackles among some
investors, caused only a temporary blip in stock markets' march
higher.
Government bond yields rose as investors dumped safer
assets.
The U.S. 10-year Treasury yield rose 2 basis points to
1.5843% US10YT=RR but that is some way off the plus-1.7%
levels hit earlier this month when fears about a spike in
inflation rattled markets. Euro zone government bond yields also
ticked higher DE10YT=RR .
Turkey's lira TRYTOM=D3 rebounded 1.3% following its
recent slide but remains close to an all-time low as a chill
settled on relations with the United States and after the new
central bank chief signalled rate hikes would harm the economy.
In commodities, U.S. crude CLc1 fell $1.01 to $61.13 per
barrel and Brent LCOc1 eased $1.11 to $65.
Gold climbed 0.1% to $1,779 an ounce XAU= .
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Emerging markets http://tmsnrt.rs/2ihRugV
Global asset performance http://tmsnrt.rs/2yaDPgn
MSCI World Equity Index https://tmsnrt.rs/32UCew5
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(Editing by Ed Osmond and Bernadette Baum)