LONDON - Global stocks traded at two-year highs and the dollar edged up on Tuesday ahead of a Federal Reserve meeting.

US Treasuries benefited from a flurry of buying, pushing yields lower, which in turn kept the dollar in a tight range after the Treasury Department said it would need to borrow less than it previously thought.

The MSCI All-World index was narrowly in positive territory at its highest since January 2022, while markets are edgy as tension escalated in the Middle East, keeping oil above $80 a barrel.

This week's other risk events for investors include the Fed and the Bank of England's decisions on interest rates, monthly US employment data and multiple earnings, in particular from stock-market stars Apple, Microsoft and Google parent Alphabet. US futures, were down 0.1 percent

"Markets now have a sense of paralysis. They obviously want to see what the Fed is going to say this week ... and how much more is the door going to be opened to rate cuts," Marc Ostwald, chief global economist at ADM Investor Services, said.

"To my way of thinking, the key thing at the moment - and this is where markets are also struggling - is we're looking at a rate-cut cycle, but central banks and markets are looking at it in terms of a normal economic cycle."

He said in the last 15 years, since the subprime crisis, all rate-cutting cycles had been triggered by some form of financial instability, rather than an economic cycle.

"We actually haven't had a normal rate-cutting cycle in response to a change in demand and changes in the labour market for a very long time, so that's why I partly think there is so much divergence in opinions," he said.

The Fed in December surprised markets with a dovish tilt, projecting 75 basis points of interest rate cuts in 2024, sparking a blistering year-end risk rally.

But a flurry of strong economic data, sticky inflation and caution from central bankers have made markets reassess their expectations.

Markets expect a 47 percent chance of a Fed rate cut in March, the CME FedWatch tool showed, down from 88 percent a month earlier. They currently anticipate 134 bps of cuts in the year, compared with 160 bps of easing a month ago.

Overnight, the S&P 500 logged another record-high close and that optimism fed into equity markets in Europe, where the benchmark STOXX 600 was up 0.4 percent, having traded at two-year peaks.

The dollar edged up against a basket of currencies, rising 0.1 percent and leaving the euro down 0.1 percent at $1.0818. But gains were tempered by a rally in Treasury prices that pushed the yield on the benchmark 10-year note down 4 basis points to 4.055 percent.

The oil price held firm, after the United States said it would take "all necessary actions" to defend American forces after a drone attack killed three US troops in Jordan.

Brent crude futures were steady at $82.35 a barrel, as was US crude, at $76.80.