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SINGAPORE (Reuters) - Global stocks rose on Wednesday, extending a rally into a 10th straight day, inspired by hopes massive U.S. government spending and tax cuts will continue to support the dollar and stimulate demand for exports.

Asian stocks hit a two-month high but European indexes opened slightly weaker, snapping a six-session winning streak.

The U.S. dollar was heading for a fourth day of gains against the euro on expectations U.S. President-elect Barack Obama will soon unveil a package of spending and tax cuts worth around $775 billion.

"U.S. stocks, hopes for Obama, and a reversal of the broad dollar-selling positions made in December will support the dollar, possibly until Obama officially takes office later this month," said Kengo Suzuki, a currency strategist at Shinko Securities in Tokyo.

"But the state of the U.S. economy is so miserable. That will prompt market players sooner or later to question the wisdom of extended dollar buying," Suzuki said.

Federal Reserve officials believed the U.S. economy could weaken substantially further even with benchmark rates between zero and 0.25 percent, meeting minutes showed on Tuesday, feeding expectations of big borrowing needs at the U.S. Treasury and weighing on long-dated government debt prices.

However, stocks have been supported by an increase in appetite for riskier assets, a steady improvement in investment grade credit spreads and falling volatility as policymakers slash interest rates and pour capital into struggling industries to mitigate damage from the financial crisis.

The string of gains on the MSCI All-Country World Index <.MIWD00000PUS> was the longest since one starting in December 2004, boosting the benchmark's gains to 26 percent since it hit a 5- year low in November.

The MSCI index of Asia-Pacific stocks outside Japan <.MIAPJ0000PUS> was up 0.5 percent, on track for an eighth consecutive session of gains.

Japan's Nikkei share average <.N225> rose 1.7 percent, boosted by shares of small lenders after a newspaper report said the government may inject money into regional banks

An early rally in Hong Kong stocks fizzled and the Hang Seng index <.HSI> fell 2.3 percent, weighed by a 5.2 percent drop in shares of China Construction Bank <0939.HK> after news Bank of America is selling a stake in the firm at a discount.

Indian stocks <.BSESN> were the big underperformer, sliding 5 percent after the chairman of outsourcing company Satyam Computer Services <SATY.BO> resigned and said the company's profits had been inflated over several years. Satyam shares dived 60 percent.

SIGNS OF LIFE

The U.S. dollar was largely steady against major currencies, approaching a one-month high against the euro and the yen.

The euro was little changed at $1.3540, while against the yen, the dollar was at 93.60 yen after touching a high of 94.63 yen on Tuesday.

The dollar's rally has reflected yet more evidence of the currency's chameleon-like status throughout the financial crisis. It was shunned briefly because the United States was the epicenter of the credit crunch, then it was prized for what was seen as its safe-haven status.

Now the dollar has benefited from a much broader rebound in investors' willingness to take more risks for higher returns -- essential for the proper functioning of markets.

This rebound in risk may yet have legs to run.

"The current leg up in the markets may have a bit more life ahead of it, but a correction is likely next week, as gains have been quite pronounced and have come rather fast," said Dariusz Kowalczyk, chief investment strategist with SJS Markets in Hong Kong.

"Still, for medium-term investors, equity, commodity and credit markets continue to offer value as we believe prices will be much higher by year end," he said in a note.

In another sign that capital markets were slowly thawing after a horrendous 2008, the Philippines said on Wednesday it has launched a benchmark-sized sovereign bond offer, joining Brazil and Colombia who each sold $1 billion of 10-year bonds on Tuesday.

Long-maturity U.S. Treasury yields, which move in the opposite direction of prices, climbed higher and increased the difference with relatively stable short-end yields.

The benchmark 10-year Treasury note yield was at 2.47 percent, up from 2.45 percent late in New York.

The 30-year bond yield was at 3.02 percent, rising from 2.99 percent on Tuesday.

U.S. oil prices fell below $48, ahead of U.S. government inventory data later in the day expected to show rises across the board, signaling weak demand in the world's largest oil consumer.

Fighting between Israeli forces and Hamas reached an uncertain state as the two studied an Egyptian proposal for a ceasefire in the Gaza Strip on Wednesday that won immediate backing from the United States and Europe.

Israel's violent offensive in Gaza to protect its towns from Hamas rocket attacks helped to lift oil prices toward $50 a barrel in the last week.

(Additional reporting by Satomi Noguchi in TOKYO; Editing by Kazunori Takada)