World stocks slipped from a 2012 high hit earlier in the session while the dollar fell to a four-week low on Tuesday after the Federal Reserve signalled it would keep monetary policy ultra-loose to support growth in the world's biggest economy.
Trading in government debt was mixed, with expectations that euro zone finance ministers will agree a bigger crisis firewall this week boosting the bloc's periphery, but signs of weakness in an Italian auction put its bonds under pressure.
MSCI's main global stock index was up 0.36 percent at 337.15, having earlier hit 338.28, its highest since August last year..
There is the perception that monetary policy staying lower for longer will provide liquidity to the markets, Ian King, head of international equities at Legal & General, said.
Loser monetary policy is good for asset prices, but on the flipside, it is in reaction to weak economic growth.
European shares turned negative after tracking Wall St and Asia higher, with the pan-European FTSEurofirst 300 index of top shares down 0.2 percent at 1,086.89 points. Local bourses in Europe also fell, while index futures pointed to a lower opening for U.S. equities after the previous day's rally.
The sub-index of banking stocks outperformed, rising 0.79 percent, with Royal Bank of Scotland leading gains on reports that Britain could sell as much as a third of its stake in the bailed-out bank to Abu Dhabi.
The S&P 500 had rebounded from last week's drop to retake a four-year high on Monday, while Japan's Nikkei jumped 2.4 percent on Tuesday to hit its highest level since the massive earthquake and tsunami on March 11 last year.
The dollar fell to its lowest in four weeks against a basket of major currencies and analysts said it could slip more if speculation about further Fed monetary easing persists, while fresh data pointing to a U.S. recovery would be supportive.
While he did not hint at a third round of bond purchases, Bernanke made clear the U.S. central bank is in no rush to reverse course after responding aggressively to a deep recession.
Bernanke's statement has left the dollar vulnerable. It will need some strong U.S. data to wipe out expectations of a new round of quantitative easing and over the next couple of weeks data will be crucial, said Niels Christensen, currency strategist at Nordea in Copenhagen.
In the short term there could be more upside for euro/dollar but not much. I can't see a move above $1.35 being sustained given the situation in Europe.
The euro also hit its highest in a month versus the weaker dollar, although the relentless weight of worry about euro zone debt meant a sustained upward move was seen unlikely.
The single currency had earlier drawn support from Germany's signal on Monday that it was willing to increase the resources available for fighting the debt crisis by combining the euro zone's temporary and permanent bailout funds.
Expectations EU finance ministers will agree on Friday to create a firewall big enough to protect Spain and Italy has supported their bonds despite fears that Spain especially will not be able to meet budget targets it has already softened.
The cost of insuring against a default by Italy or Spain also fell on Tuesday while the Portuguese/German 10-year yield spread dipped below 1,000 bps for the first time since early September.
But Italian bonds later came under pressure following an auction of inflation-linked paper which traders said had left dealers struggling to offload the debt.
That helped Bunds establish themselves firmly in positive territory after a choppy start to the day. June Bund futures were 17 ticks higher on the day at 136.91, after hitting a session high earlier of 137.21.
Ten-year yields were 3 bps lower at 1.93 percent, around the middle of this year's 1.75 to 2.12 percent trading range. Yields on U.S. Treasuries held steady close to one-week lows.
It's a bit fuzzy at the moment, with no clear direction and it seems we will continue to trade the recent range, DZ Bank rate strategist Michael Leister said.
From a purely technical perspective the risk is that Bunds move lower but it remains very difficult to time these mood swings and for now the only constant is the volatility.
Italy sold 2.8 billion euros of two-year zero coupon bonds, with yields falling to their lowest since November 2010, and 1 billion euros of the inflation-linked bond.
It is due to auction up to 8.5 billion euros of medium- and longer-term debt on Thursday. Spain comfortably sold 2.58 bln euros in treasury bills on Tuesday.
Oil held above $125 a barrel, boosted by supply concerns as the West tightens sanctions on Iran although expectations for an increase in U.S. crude inventories dampened sentiment.
Expectations that U.S. rates will stay low and euro gains also pushed gold to two-week highs above $1,690 an ounce after prices posted their biggest one-day rise since late January in the previous session.