NEW YORK (Reuters) - Global equity markets rose and the dollar strengthened against the yen on Monday on expectations the Federal Reserve will reinforce its commitment this week to supporting the United States' (US) economic recovery.

US stocks pared gains late in the session as confidence eroded that Chairman Ben Bernanke will provide investors with a better idea on the US central bank's monetary policy at the end of a two-day meeting on Wednesday.

Wall Street had rallied more than 1 per cent earlier in the session, recovering much of last week's losses.

"We're held hostage in front of comments about what the direction for stimulus is, and the market is always more volatile when it is in front of the information flow," said Mr Dan Veru, chief investment officer at Palisade Capital Management LLC in Fort Lee, New Jersey, which oversees US$3.8 billion (S$4.75 billion).

The Fed meeting has taken on greater significance since Mr Bernanke said in May that the US central bank may decide to pare back its bond buying in its next few meetings if the economy gains momentum.

Those comments halted a stock market rally and sparked a surge in Treasuries yields while igniting a dramatic uptick in volatility as investors tried to gauge the effects of a Fed reduction in its asset purchase programme.

"The chairman will probably say something to the effect of, the Fed will use every means at its disposal to make sure the economic growth we've seen continues," said Mr Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets in Baltimore.

The Dow Jones industrial average was up 103.27 points, or 0.69 per cent, at 15,173.45. The Standard & Poor's 500 Index was up 11.14 points, or 0.68 per cent, at 1,637.87.

The Nasdaq Composite Index was up 27.44 points, or 0.80 per cent, at 3,451.00.

The market built on its sharp gains after data showed US homebuilder sentiment jumped in June, rising above 50 for the first time since the start of the housing crisis in a vote of confidence for the sector's recovery.

"The market is beginning to adjust itself to an eventual trimming from the Fed toward the beginning of next year," said Mr Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

The FTSEurofirst 300 index of top European shares rose 0.72 per cent to close at 1,184.36, while MSCI's all-country world equity index rose 0.85 per cent.

Despite the recovery, the rally for some did not look wholly convincing. The FTSEurofirst 300 is still down about 6 per cent from its 2013 peak of 1,258.09 struck in late May.

"The rallies look corrective in nature. We don't see any new money participating in it," said Logic Investments' strategy head Peter Rice. "If anything, the risk still remains to the downside."

A report from the New York Fed that showed growth in New York state manufacturing picked up in June also supported US stocks, but the details were less encouraging as new orders and employment fell to their lowest levels in five months.

The dollar rose against the yen for the first time in five trading sessions as stock markets gained worldwide. Japan's Nikkei index jumped 2.7 per cent.

But traders said range-trading is likely to dominate until the Fed's policy announcement on Wednesday.

The dollar briefly extended its gains after the New York state manufacturing report topped economists' expectations.

"The dollar has been selling off over the last week or so, so I think it probably has more room to gain than to lose," said Mr John Doyle, currency strategist at Tempus Inc in Washington.

The dollar rose 0.51 per cent to 94.55 yen (S$1.26). The euro rose 0.16 per cent to US$1.3368.

Treasury prices pared early gains. The benchmark 10-year US Treasury note fell 14/32 in price to yield 2.1781 per cent.

Brent crude oil futures hit a 10-week high close to US$107 a barrel on Monday as tensions rose in the Middle East, but prices finished slightly lower after a late sell-off in US gasoline futures.

Brent crude oil futures for August fell 46 US cents to settle at US$105.47 a barrel.

US light crude oil futures settled down 8 US cents at US$97.77.