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GLOBAL MARKETS-Fed and Trump keep dollar glum as Greece warms Europe

* Graphic: World FX rates in 2017 http://tmsnrt.rs/2egbfVh

* Dollar slips, erasing gains made after solid PMI readings

* European stocks buoyed by strong German, French data

* Periphery rallies as Greece returns to bond market

* VIX fear gauge hits 24-year low

Oil rises on Saudi pledge to cut exports

By Marc Jones

LONDON, July 25 (Reuters) - The dollar sat at a more-than-one-year low while stocks climbed on Tuesday, as investors bet that subdued U.S. inflation and strains in Washington would limit Federal Reserve interest rate moves for the rest of the year.

The Fed starts a two-day meeting later in the day to discuss its monetary stance and the timing of its long-awaited balance sheet reduction, a plan most likely to be detailed in September.

There is a growing sense that it will want to tread carefully, and markets were reflecting that with cautious risk appetite. But sentiment got a boost from "euphoric" German economic data and news that Greece was tapping capital markets for the first time since 2014.

With U.S, stock markets also set to begin the day at or near their all-time highs, volatility was also in deep hibernation. Financial markets' so called 'fear gauge' - the VIX index - was at a new 24-year low, having only been lower twice in its 25-year history.

Strength among commodity firms and banking stocks, as well as a string of solid corporate updates, boosted European shares as the euro, the pound and main Scandinavian currencies took advantage of the soft dollar.

The U.S. currency was stuck at its lowest since June 2016 after a near 4 percent drop over the last month and more than 8 percent fall this year.

"We may see some consolidation here from the dollar but fundamentally our bearish view on it remains," UniCredit Global Head of FX Strategy Vasileios Gkionakis said.

"What the Fed says tomorrow is the million dollar question... but the risk is that they sound a bit more cautious after the fourth consecutive downside surprise in inflation."

Against the yen, the dollar did manage to put up a bit of fight, edging up to 111.380 yen having slipped as low as 110.625 yen - its lowest since mid-June - the previous day.

The yen had yielded as two new Bank of Japan policymakers said it would be premature to even talk about ending its massive monetary stimulus. Analysts see the dollar under 110 yen though, if the Fed shows any serious concern this week.

The political troubles of President Donald Trumps White House continue to mount too, with investigations into his pre-election links to Russia deepening.

Trump blasted the probes again in a pair of early morning tweets aimed at his attorney general on Tuesday.

There is also growing anxiety about the United States hitting another debt ceiling in October with few options to potentially offset that.

The debt ceiling issue has started to cause problems at Treasury bill auctions and the three-month T-bill yield rose above the 6-month equivalent late Monday to account for the outside risk of a technical default.

'EURO-PHORIC'

The euro got a further boost as German business morale hit a new high, with firms "euphoric" according to the Munich based Ifo economic institute that compiles the data from 7,000 of them in Europe's largest economy.

"Hardly anything seems to be able to hit the German economy," Ifo economist Klaus Wohlrabe added, saying with reference to the euro's recent sharp rise that German business was experienced in managing the impact of exchange rate moves.

Greek government borrowing costs hovered near their lowest level since 2010, meanwhile, as the country sought to sell its first longer-dated bond in three years.

Some five years since European Central Bank Mario Draghi pledged to do "whatever it takes" to preserve the euro, the debt sale by the euro zone's weakest economy is the clearest sign yet of the bloc's recovery from its crippling debt crisis.

It spurred demand for other low-rated debt, with bonds of Portugal, Italy and Spain outperforming those in powerhouse Germany.

The gap between Italian and German 10-year bond yields narrowed to its smallest since December 2016 at 153 basis points.

"Confidence in Greece is really coming back, but we need to continue the good work. We need to be on the bicycle, and to keep on pedaling," Europe's economics commissioner, Pierre Moscovici, said.

In commodities, oil prices extended their recovery on a pledge by leading OPEC producer Saudi Arabia to cut exports in August to help reduce the global crude glut. Halliburton Co's executive chairman also said the U.S. shale drilling boom would probably ease next year.

U.S. crude jumped 1.6 percent to $47 a barrel, after closing up 1.25 percent on Monday.

Global benchmark Brent added 1.55 percent to $49.35, extending Monday's 1.1 percent rise.

The rise in risk appetite stalled gold, with the precious metal dipping almost 0.3 percent, or 5 cents, to $1,250 an ounce. (Reporting by Marc Jones; Editing by Mark Trevelyan)