Stocks rebound, oil pares losses ahead of Fed meeting

Crude oil prices pared losses and global equitymarkets rebounded on Tuesday as investors snapped up beaten-down energy stocks and wagered the U.S. central bank willexpress caution in the midst of growing turmoil in capitalmarkets sparked by oil's collapse.

Russia's huge emergency rate hike failed to stabilize the ruble's decline, which jolted markets, and German Bund yields hit a new low as a collapse in Russian financial markets sent investors scurrying for top-rated assets.

Russian stocks on the dollar-denominated RTS index .IRTSslumped 12.4 percent, while sovereign and corporate bonds also retreated.

Brent crude trimmed losses to trade just below $60 a barrel after breaking through that level in a plunge of more than 4 percent to plumb a July 2009 low. U.S. oil prices rallied abruptly to trade just above break-even on what traders said was a mix of profit-taking and positioning ahead of options expiry.

"There's a whole lot of things going on, from the options trade in WTI to the position squaring in Brent, that's helping oil prices get some upward traction here," said Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow, New York.

European shares staged a late rebound as the ruble recovered much of the day's losses against the dollar. Traders pointed to comments by U.S. Secretary of State John Kerry, who said Russia had made constructive moves toward possibly reducing tensions in Ukraine.

Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont, said markets will remain volatile, citing unresolved concerns over the ruble's collapse, Ukraine, Greek elections and declines in the stock markets of oil-producing nations.

"We are not out of the woods yet, far from out of the woods," Mendelsohn said, adding that attractive valuations in the energy sector turned the equity market around.

"There are many, many stocks, especially in the energy sector, that were just trading at absolute ridiculous prices to their fair market valuation. That is really what started the rally, when investors really started to come into the energy stocks," he said.

The FTSEurofirst 300 index of pan-European shares .FTEU3 closed 1.9 percent higher at 1,315.19, while MSCI's all-country world index .MIWD00000PUS rose 0.6 percent to 406.04.

The Dow Jones industrial average .DJI was up 65.48 points, or 0.38 percent, at 17,246.32. The Standard & Poor's 500 Index .SPX was up 4.62 points, or 0.23 percent, at 1,994.25. TheNasdaq Composite Index .IXIC was down 5.81 points, or 0.13 percent, at 4,599.35.

Brent crude cut more than half its losses. Brent LCOc1 was down $1.16 at $59.90.

U.S. West Texas Intermediate (WTI) futures CLc1 slipped 5 cents to $55.86 a barrel.

Tumbling oil prices spurred a fresh wave of safe-haven bids for U.S. government debt, sending the 30-year yield to its lowest in more two years as investors worried about how the plunge in crude prices might harm the global economy.

Benchmark 10-year Treasury notes rose 14/32 in price to yield 2.0677 percent, after yields earlier fell as low as 2.009 percent.

The dollar hovered at its lowest level against the safe-haven yen in roughly a month.

The euro was last up 0.56 percent against the dollar at $1.2506. The dollar was last down 0.47 percent against the yen at 117.25 yen.