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The euro hovered near three-week highs against the dollar, with traders citing solid buying from accounts, including Asian central banks, though year-end trading was thin and choppy.

A warning from Moody's also weighed on the dollar. The credit ratings agency said overnight it could move a step closer to cutting America's triple-A rating if the Obama administration's deal to extend tax cuts wins Congressional approval and pushes up the country's already bloated debt levels.

Metals prices rose after Chinese data released at the weekend showed buoyant industrial production and fixed asset investor, pushing copper to record highs and buoying shares of miners and other resource-related companies.

"Sentiment is decidedly more upbeat now than it was a few weeks ago," said Austock senior client adviser Michael Heffernan. "China didn't increase rates, Ireland has settled down, America has given the tick to the tax bill and there is no major domestic data out."

Many investors had feared China would raise interest rates last week to curb mounting inflationary pressures, but the central bank opted instead to increase the amount of extra capital top banks must hold.

An official newspaper on Tuesday said China would probably target the same level of new loans next year as in 2010, a further indication that policy could be slightly looser than expected.

A Reuters poll released on Monday showed economists still see a rate rise in China in coming months, but expect policymakers to rely more on lending controls in 2011 as its weapon of choice in the fight against inflation.

The MSCI index of Asian stocks outside of Japan .MIAPJ0000PUS rose 0.4 percent, while the Nikkei .N225 was little changed.

Traders said that if the Nikkei can hold on to its recent gains, retail investors are likely to jump on the bandwagon and help it pierce strong technical resistance looming at 10,420.74, the level where futures and options contracts expiring in December settled on Friday.

South Korean stocks hit a fresh 37-month high, breaching the psychologically significant 2,000-point level, fueled by gains in key technology issues and the auto sector such as Hyundai Motors (005380.KS).

Buoyed by optimism about Chinese demand for commodities and resources, Australian shares .AXJO edged up 0.2 percent and stood within 100 points of breaking even for the year, with some traders optimistic that would be achieved.

In New York on Monday, the broad S&P 500 index .SPX closed flat and the Dow .DJI ended just above break-even amid signs U.S. stocks may be nearing overbought levels, and on investor caution about staking out new positions heading into year-end. .N

MOODY'S WARNING WEIGHS ON DOLLAR

The dollar index .DXY was last at 79.357, having plumbed

The Federal Deposit Insurance Corp board will consider a proposal on how to set minimum capital requirements for banks under a provision in the new law that was added by Sen. Susan Collins of Maine with the strong backing of FDIC Chairman Sheila Bair.

Many lawmakers and regulators came out of the 2007-2009 financial crisis arguing banks did not hold enough high quality capital to deal with the shock to financial system and this contributed to the government having to bail them out.

Banks have voluntarily been building capital levels in the aftermath of the crisis so it is unclear how many would have to bolster their capital.

The proposed rules, part of a busy week by regulators toward implementing Dodd-Frank, may serve mostly to stop capital levels getting too low in the future.

Collins' provision would set a "floor" for capital and leverage requirements.

Bank holding companies would have to meet the same minimum requirements that govern their banking units that are insured and regulated by the FDIC. In the past, capital requirements for holding companies have been less stringent than those for insured depositary institutions.

These minimum requirements would also apply to any non-bank institutions that the government deems to be important to the financial system and therefore subject to supervision by the Federal Reserve.

The rule being considered Tuesday will be the first step in putting the Collins amendment into practice and it will be jointly issued by the FDIC, the Office of the Comptroller of the Currency and the Fed.

Bair said earlier this year she was concerned bank holding companies were relying on their insured depository institutions as a source of capital strength when the opposite should have been the case.

"If, in the future, bank holding companies are to become sources of financial stability for insured banks, then they cannot operate under consolidated capital requirements that are numerically lower and qualitatively less stringent than those applying to insured banks," she said in a May 7 letter supporting Collins' proposal.

A question surrounding the Collins amendment is how it will mesh with the new international capital standards, known as Basel III, which were endorsed in November by leaders from the Group of 20 developed and emerging nations.

The details of that agreement are still being hammered out and U.S. regulators have yet to consider how to implement it.

MF Global financial services analyst Jaret Seiberg said the rule being considered by the FDIC on Tuesday will likely seek to establish a standard based on the existing Basel I and Basel II agreements.

"This matters because the proposal may actually require banks to operate separate capital systems indefinitely, which is a compliance cost as well as a distraction," Seiberg wrote in a research note.

The Dow cut its gains and the S&P 500 ended a thinly traded session flat as optimism faded over China's move to tame its growth, and as some technical indicators suggested a near-term pullback could be in the cards.

About 7.32 billion shares traded on the New York Stock Exchange, the American Stock Exchange and the Nasdaq, well below the year's daily average of 8.62 billion.

Stocks earlier had risen as optimism China would not aggressively head off growth boosted energy and materials stocks.

Companies that sell oil, like Chevron Corp (CVX.N), and those that make mining equipment, like Caterpillar Inc (CAT.N), drove the Dow higher. At the close, both Caterpillar and Chevron were up 1.5 percent or more. The PHLX oil service index .OSX rose 1.3 percent.

Investors had feared China would raise interest rates to slow growth, but instead it merely increased the amount of extra capital top banks must hold, a less severe move by the world's second-largest economy.

"Even though China isn't fueling us 100 percent, if it was to tighten, that would mean less strength in a weak recovery here," said Jeffrey Friedman, senior market strategist at Lind-Waldock in Chicago.

The Dow Jones industrial average .DJI gained 18.24 points, or 0.16 percent, to end at 11,428.56, well off its intraday high of 11,480.03. The Standard & Poor's 500 Index .SPX inched up a mere 0.06 of a point, or 0.00 percent, to finish at 1,240.46. But the Nasdaq Composite Index .IXIC fell 12.63 points, or 0.48 percent, to close at 2,624.91.

The S&P 500 reached another high for the year on Monday, advancing to an intraday peak at 1,246.73. The index's steady climb since breaching 1,228 -- a key retracement of the 2007-2009 bear market losses -- has been judged a sign of further gains, even as the relative strength index suggests stocks are nearing an overbought condition.

APPLE PARES GAIN, DELl DROPS

The Nasdaq ended the day solidly lower as some tech names, including Apple Inc (AAPL.O) and EMC Corp (EMC.N), traded off highs reached earlier in the session. Apple rose more than 1 percent in afternoon trading, but at the close, it was up just 0.4 percent at $321.67. The stock is up 53 percent so far this year.

"We've definitely seen a lot of strength in large-cap tech recently, and they took a bit of a pause in the afternoon with people winding down at the end of the day," said Timothy Harder, chief investment officer at Peak Capital Investment Services in Denver. "There wasn't much to spur trading, and in the absence of any real news and light volume, there wasn't much to keep us up."

Healthcare stocks had jumped briefly on news that a Virginia judge invalidated a key part of the March healthcare overhaul championed by President Obama, but these shares quickly fell back. After rising as much as 1.6 percent, the Morgan Stanley Healthcare Payor Index .HMO slipped 0.3 percent. Shares of health insurer Aetna (AET.N) rose 1 percent to $30.92.

In deal news, General Electric Co (GE.N) said it would buy British oilfield services company Wellstream Holdings Plc (WSML.L) while Dell Inc (DELL.O) agreed to buy data storage company Compellent Technologies Inc (CML.N).

GE's stock shed 0.6 percent to $17.62 after reaching a deal to buy Wellstream by raising its bid for the British oil drilling pipe maker by 6 percent to $1.3 billion.

Huntington Bancshares (HBAN.O) said it was issuing stock and bonds to help repay $1.4 billion it received under the U.S. Government's Troubled Asset Relief Program in November 2008.

First Horizon National Corp (FHN.N) said it is selling debt and equity to pay off $867 million of TARP aid.

Huntington's shares fell after the news because the bank will sell so much equity to repay the government, analysts said. First Horizon's shares rose as investors cheered its move to shed government support.

Analysts said these repayment plans could be the first of another wave of TARP repayments, and suggest that the U.S. banking system is continuing to heal after the 2008 crisis.

Banks that have yet to repay the government should think about doing it soon, said Jeff Davis, bank analyst at boutique bank Guggenheim Partners.

"If you're a bank that does wait now, the market might be left to assume there are deeper problems," Davis said.

The offerings from Huntington and First Horizon come one year after the largest U.S. banks -- including Citigroup Inc (C.N), Bank of America Corp (BAC.N) and Wells Fargo & Co (WFC.N) -- raised tens of billions of dollars to repay their government bailout aid. The first wave of banks to repay TARP came in the summer of 2009, and included Goldman Sachs Group Inc (GS.N) and JPMorgan Chase & Co (JPM.N).

BIG, BUT NOT TOO BIG

Despite the latest round of offerings from smaller lenders, the largest U.S. regional banks may still be months away from buying back the government's temporary investment.

Regional banks SunTrust Banks Inc (STI.N), Regions Financial Corp (RF.N), Fifth Third Bancorp (FITB.O) and KeyCorp are the four largest U.S. lenders that have yet to repay TARP.

The four banks were part of a larger group of the 19 biggest banks that underwent U.S. government stress testing in Spring 2009.

Huntington, with $53 billion in assets, and First Horizon, with $25 billion, fell well below that threshold.

Now, the Federal Reserve is retesting all of the "stress test" banks before allowing them to repay TARP, raise their dividends or repurchase shares.

Results are not expected until first quarter 2011, leaving a window for smaller banks to repay TARP.