* Stocks rally on expectations Fed will ease on Thursday * Euro hits four-month high vs dollar on German court optimism * Treasuries weakened before auction, Fed meeting FREE GUIDES AND REPORTS FROM DIANOMIADVERTISEMENT Investing in Asia The benefits of investing in Asia Download Magazine By Ellen Freilich NEW YORK, Sept 11 (Reuters) - Stocks in the U.S. and Europe rallied, Treasuries slipped, and the U.S. dollar weakened on Tuesday on expectations a German constitutional court would not interfere with a euro zone rescue plan and that the Federal Reserve would again ease monetary conditions this week. The prospect of Fed easing weighed on the U.S. dollar since it pointed to lower returns on dollar-demonimated assets. In addition, the view that the German court would approve the ESM or euro zone bailout fund helped the euro reach a four-month high versus the dollar. "The strong dollar has helped keep U.S. inflation very low, but the Fed wants the dollar to weaken when its strength starts to hurt the U.S. economy," said Robert Robis, head of fixed income macro strategies and senior portfolio manager at ING Investment Management in Atlanta, Georgia. The euro hit $1.2851 on Tuesday, climbing past its 200-day moving average around $1.2834 and leaving it up 0.8 percent. The euro has rallied more than 6.0 percent from its two-year low of $1.2042 seen in late July. The dollar also sold off after Moody's Investors Service said the United States could lose its triple-A debt rating if next year's budget talks do not result in a lower debt to GDP ratio. Standard & Poor's rating agency cut its triple-A debt rating on U.S. debt on Aug. 5, 2011. Investor Warren Buffett reacted at the time, saying U.S. debt merited a "quadruple-A" rating. STOCKS UP, TREASURIES DOWN Meanwhile, U.S. and global stocks rallied and Treasury prices slipped. "The scenario is looking very much like September 2010 when Fed Chairman Ben Bernanke signaled an easing at the Jackson Hole conference and the Fed eased in November," Robis said. This time, the Fed is likely to ease sooner, analysts say, but the impact of the prospective easing looks similar. "Equities rally, the Treasury curve steepens, and the dollar weakens," Robis said. Investors expect the Fed to announce additional stimulus measures when the central bank announces its policy decision after a two-day meeting on Thursday. On Tuesday, the Dow Jones industrial average was up 84.72 points, or 0.64 percent, at 13,339.01. The Standard & Poor's 500 Index was up 6.53 points, or 0.46 percent, at 1,435.61. The Nasdaq Composite Index was up 9.96 points, or 0.32 percent, at 3,113.98. The benchmark 10-year U.S. Treasury note was down 13/32 in price, its yield rising to 1.70 percent from 1.66 percent on Monday, as investors positioned for $66 billion in new U.S. government debt supply this week. The MSCI global share index climbed 1.81 percent. Markets for riskier assets have been rallying ever since the European Central Bank President said in late July that the ECB would do whatever it would take to preserve the European currency union. Last Thursday, Draghi pledged unlimited bond buying to contain the borrowing costs of Spain and Italy. "Draghi's speech in late July kick-started this," Robis said. Another event investors are watching is a Dutch general election on Wednesday, with voters there torn between bailouts for troubled euro zone economies and austerity measures locally. European shares were near unchanged, but stocks on French and German exchanges rose. Bund futures were up 9 basis points at 140.41 as uncertainty remained around the outcome of the ESM ruling and as worries resurfaced on Greece's fiscal repair plans. Oil prices remained firm, with Brent crude futures just under $115 a barrel. Safe-haven favourite gold, rose towards six-month highs, helped by weakness in the dollar, rising 0.7 percent at $1.736.91 an ounce by 1415 GMT. Reflecting growing investor jitters, the CBOE Volatility index posted its biggest daily increase in seven weeks on Monday.

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