* U.S., European stocks recover on hopes Cyprus deal will emerge
* Cypriot leaders reject bailout plan, look for alternative
* Euro up 0.2 percent at $1.2910, off four-month lows
* Fed meeting outcome also in focus, few major changes expected
By Ryan Vlastelica
NEW YORK, March 20 (Reuters) - Stock markets around the world rose and the euro held firm on Wednesday on hopes that European policymakers would contain the financial crisis in Cyprus after lawmakers there voted down a rescue plan.
Shares were also supported by the latest statement from the Federal Reserve's policy-setting committee, which held firm to its plan to stimulate the economy despite data indicating improved conditions.
The U.S. central bank held to its policy of large-scale bond purchases to boost economic growth, as expected, though it suggested that the size and pace of the purchases may change based on their expected efficacy and cost.
"This is exactly what we want to hear right now. We should continue to move higher, and gains could accelerate moving forward," said Todd Schoenberger, managing partner at LandColt Capital in New York, who called the statement "fabulous news for equity investors."
The Dow Jones industrial average was up 46.64 points, or 0.32 percent, at 14,502.46. The Standard & Poor's 500 Index was up 8.23 points, or 0.53 percent, at 1,556.57. The Nasdaq Composite Index was up 19.35 points, or 0.60 percent, at 3,248.45.
In the euro zone crisis, efforts to rescue Cyprus were thrown into disarray on Tuesday when its lawmakers rejected the conditions for a 10 billion euro European Union bailout.
While investors are worried about the impact Cyprus collapsing could have on the rest of the euro zone, the conditions, which included taxing bank depositors, were also viewed skeptically. Still, markets have calmed as investors expect an alternative solution to emerge.
European shares snapped a three-day losing streak, with the FTSEurofirst 300 index closing 0.3 percent higher while MSCI's world equity index rose 0.4 percent. The euro bounced off four-month lows to $1.2955 and the U.S. dollar index dipped 0.3 percent.
Earlier in Asia, Hong Kong stocks bounced off a three-month low thanks to a rally in Chinese shares, but MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.1 percent as other regional markets worried about Cyprus. Japanese markets were closed for a holiday.
Concerns about Cyprus were clearly evident at an auction of German government bonds, seen as a European safe haven. The sale of 3.36 billion euros in new 10-year securities drew strong demand and sold at an average yield of 1.36 percent, the lowest auction price since July last year.
Still, German government bonds ticked lower, with the Bund future down 0.3 percent at 144.26. In the U.S. bond market, the benchmark 10-year Treasury note was down 9/32, with the yield at 1.9355 percent.
Bond investors were looking to comments by the European Central Bank, which has said it will provide liquidity to Cypriot banks within certain limits, even though if there was no bailout, the bank would have to end emergency lending assistance under its current rules.
Cypriot leaders were holding crisis talks in Nicosia on Wednesday to try to avert a financial meltdown after Tuesday's overwhelming rejection of the terms of the European Union bailout, which involved a levy on bank deposits.
The country was trying to get help from Russia, given the high level of Russian deposits in Cypriot banks, but failed to agree on any loan deal at a first round of talks.
The main UK share index dipped a modest 0.2 percent. British finance minister George Osborne called on the Bank of England to do more to help spur the country's stagnant economy as he announced a halving of this year's growth forecast in an annual budget statement.
Oil prices joined in the general recovery, with Brent crude rising 0.8 percent to $108.34 per barrel, while U.S. crude futures added 0.9 percent to $92.96.
"Clearly, market players anticipate that an alternative solution will be found for Cyprus," said Carsten Fritsch, analyst at Commerzbank. "Nonetheless, the uncertainty surrounding this issue is likely to continue to keep oil prices in check in the short run."