* Dollar hits 13-month low as Fed meeting begins
* S&P 500 jumps to record high on busy earnings day
* Volatility plunge sends VIX index to 23-year low
* Oil jumps on Saudi pledge to cut exports (Updates with late afternoon U.S. market activity)
NEW YORK, July 25 (Reuters) - A set of strong U.S. earnings reports sent the S&P 500 stock index to a record high on Tuesday, while oil prices rallied 3 percent on Saudi Arabia's pledge to cut exports in August and copper hit a two-year high.
The dollar edged up after hitting its lowest level since June 2016 as the Federal Reserve began a two-day policy meeting.
The Fed is expected to discuss its monetary policy stance and the timing of a long-awaited balance sheet reduction, a plan seen as likely to be detailed in September. No change to U.S. interest rates was expected.
There is a growing sense that the Fed will want to tread carefully amid signs of subdued U.S. inflation, and markets were reflecting that. They were also influenced by strong German economic data and Greece's first return to capital markets since 2014.
Investors also are watching for the U.S. Senate to vote on a repeal of the 2010 Affordable Care Act, which President Donald Trump and Republicans have vowed to undo.
There has been concern that the failure to pass healthcare legislation reflects discord that will make budget negotiations acrimonious, raising the risks that debt payments due in October may be delayed as the United States bumps up against the debt ceiling.
"Right now, it's kind of risk on. There's been a certain amount of pullback based on concerns about politics and earnings growth. With politics, arguably the worst has happened with healthcare. There's only the possibility of a pleasant surprise now," said Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Massachusetts.
"We've seen earnings come, in aggregate, well above what was expected. So basically the corporate fundamentals are ratifying what the market has been saying all along," McMillan said.
In the U.S. stock market, volatility was muted with the VIX index, Wall Street's so-called fear gauge, at a 23-year low.
Upbeat results from Caterpillar Inc and McDonald's Corp boosted the Dow and S&P 500.
Shares in Google parent Alphabet Inc slid nearly 3 percent, weighing on the Nasdaq, after the company late on Monday flagged rising costs.
The Dow Jones Industrial Average was up 116.72 points, or 0.54 percent, to 21,629.89, the S&P 500 had gained 8.8 points, or 0.36 percent, to 2,478.71 and the Nasdaq Composite had added 6.89 points, or 0.11 percent, to 6,417.69.
MSCI's index of stock markets across the world was up 0.2 percent, while European shares rose 0.5 percent.
The dollar index, which measures the greenback against a basket of currencies, was last up 0.1 percent. It earlier hit its lowest level since June 2016 at 93.638.
It has fallen nearly 4 percent over the last month and more than 8 percent this year, and was last down 0.2 percent on the day at 93.811.
The euro rose to its highest since August 2015 and was just below a 2-1/2-year peak, boosted by a stronger-than-expected German business survey.
U.S. Treasury yields rose as gains in stocks, as well as expectations that legislators in Washington may pass a healthcare overhaul, helped reduce demand for safe-haven U.S. bonds.
Benchmark 10-year notes were last down 19/32 in price to yield 2.32 percent, up from 2.25 percent on Monday.
The U.S. Senate voted to begin formal debate of healthcare legislation that would repeal major elements of Obamacare and possibly replace it with a less costly program.
In commodities, U.S. crude jumped 3.3 percent to settle at $47.89 a barrel, the highest close in more than a month, a day after U.S. oil producer Anadarko said it would cut capital spending plans and Saudi Arabia vowed to reduce exports.
Brent crude also added 3.3 percent to settle at $50.20, extending Monday's 1.1 percent rise.
Copper prices hit their highest in more than two years, boosted by signs of demand from China and a weak dollar. Copper on the London Metal Exchange ended up 3.3 percent at $6,225 a tonne, having earlier touched $6,234.50 a tonne, its highest since May 2015.
(Additional reporting by Marc Jones in London; Editing by Meredith Mazzilli and Nick Zieminski)