The dollar hit its lowest in nearly two weeks against a basket of currencies and global stocks edged up from five-week lows ahead of a Federal Reserve meeting expected to dampen expectations for higher rates.
The U.S. central bank is widely expected to keep interest rates on hold at a record low and keep its planned debt purchases unchanged.
The focus is on whether the Fed tweaks its statement to rein in a slide in U.S. Treasuries that has threatened the economy's budding recovery.
The Fed may adopt even stronger language to signal that it is likely to keep rates on hold in coming months, in order to combat rising market expectations of near-term tightening, said analysts at Barclays Capital.
Benchmark Treasury yields surged to an eight-month peak above 4 percent earlier this month, pushing up mortgage rates and offsetting the Fed's efforts to help the economy by buying hefty amounts of government and mortgage-related debt.
Investors have started to question how the Fed will step back from its array of emergency programmes to stem the crisis and whether its quantitative easing will stoke inflation.
We do not look for the Fed to ramp up its Treasury purchases at this meeting, the Barclays analysts said. It is likely to continue its current asset purchase programme and reassess it at the August meeting.
The dollar extended losses after a sharp slide the previous day, the latest volatile move across markets in the last days of the second quarter.
It hit its lowest since June 11 against a basket of currencies <.DXY> and since June 12 against the euro, before trimming losses to trade around 0.20 percent lower at $1.4107 per euro, according to Reuters data.
The dollar steadied against the yen at 95.31, off the previous session's three-week lows.
The MSCI world equity index <.MIWD00000PUS> rose 0.7 percent after hitting its lowest since May 18 on Tuesday on concern over the global economy.
The FTSEurofirst 300 <.FTEU3> index of top European shares edged up 0.4 percent after losing 3.2 percent in the previous two sessions to five-week lows.
Forecast-beating results from U.S. No. 3 software maker Oracle
We're seeing a bounce, helped in part by Oracle's results that were not as bad as they could have been, said Edmund Shing, strategist at BNP Paribas in Paris.
Euro zone government bonds rose 11 ticks to 120.34 ahead of the results of the European Central Bank's first one-year tender due at 0920 GMT. Market players are looking for signs of financial strain in the euro zone if demand is sizeable.
U.S. Treasuries dipped after a two-day rise, ahead of the Fed decision and a $37 billion auction of five-year notes later on Wednesday.
Oil slid back below $69 a barrel, following a 2.6 percent gain in the previous session.
(Additional reporting by Blaise Robinson in Paris, editing by Mike Peacock)