* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
* Nikkei surges as Tokyo markets reopen after Monday holiday
* European bourses take breather, euro gains strength again
* Fed seen announcing plans to unwind debt portfolio
* Crude futures steady near recent highs
By Marc Jones
LONDON, Sept 19 (Reuters) - Record-high world stocks braked and the dollar dipped on Tuesday ahead of a two-day meeting of the Federal Reserve after which it is expected to detail plans to shrink its balance sheet and gradually keep lifting U.S. interest rates.
Tokyo's Nikkei had surged 2 percent overnight having been closed on Monday when Wall Street and MSCI's 47-country All World index hit fresh all-time peaks, but elsewhere bourses seemed ready for a breather.
London, Frankfurt and Paris fluttered between flat to slightly lower after days of gains in the previous nine as the traditional pre-Fed caution took hold.
Investors were moving back into the euro and European government debt.
An early flurry of activity saw the euro pop to a near two-year high versus the Japanese yen of 134.14 yen. The Bank of Japan also meets this week but unlike the Fed is expected to signal it will keep its stimulus programme in full.
JP Morgan Asset Management portfolio manager Iain Stealey said markets were now fully set for the Fed to officially announce it will cut, or taper, the amount it reinvests from the profits of its $4.2 trillion crisis-era bond portfolio.
"They have already announced the amounts they are going to start with, $10 billion on a monthly basis and probably starting over the next month or so," Stealey said.
"What may be more important to keep an eye on is the dot-plot. We still think they will have the dots set up to expect one more hike this year, which will obviously be in December, and three next year."
Elevated risk appetite in Europe meanwhile saw the gap between Portuguese and Italian 10-year government bond yields narrow to levels not seen since the start of the euro zone debt crisis of 2010-2012.
This follows a strong rally in Portuguese debt over the last two sessions, after S&P Global became the first major ratings agency to give the country back an investment grade rating, more than five years after it first sank into junk territory.
Investors were also debating any potential market impact from a possible snap election in Japan.
Prime Minister Shinzo Abe is considering calling a poll for as early as next month to take advantage of his improved approval ratings in the wake of the North Korea crisis, and disarray in the main opposition party, according to sources.
Stefan Worrall, director of Japan equity sales at Credit Suisse in Tokyo said there has been concern growing for a while among foreign investors about the future of Abe's stimulus-focused Abenomics programme.
"If Abe is cemented in power for another few years, that would be a market-positive event," he said. "Certainty is preferred to uncertainty, when it comes to market confidence."
The Nikkei's 2 percent jump overnight took its gain to almost 30 percent since Abe took power in late 2012.
Elsewhere in Asia the mood had been more subdued. South Korean shares dipped 0.1 percent, against a backdrop of caution ahead of the Fed meeting as well as continuing tensions on the Korean peninsula.
U.S. Defense Secretary Jim Mattis hinted on Monday about the existence of military options on North Korea that might spare Seoul from a brutal counterattack. But he declined to say what kind of options he was talking about or whether they involved the use of lethal force.
The dollar index, which tracks the greenback against a basket of six major rivals, inched 0.2 percent lower to 91.928 .
Britain's sterling also started to retreat again having been pushed off post Brexit highs on Monday by Bank of England governor Mark Carney who said any upcoming UK rate hikes would be gradual and limited.
In commodity markets, metals shifted lower and oil prices steadied near last week's multi-month highs. Traders braced for a potential stockpile build-up expected later this week, limiting the prospect for further gains.
U.S. crude futures were up 19 cents at just above $50 per barrel, within sight of Thursday's nearly four-month high of $50.50. Brent crude hovered at $55.50, not far from an almost five-month high of $55.99 it had marked that day.
Prices were capped by rising U.S. shale output and fears that another strong hurricane hitting the Caribbean could knock out refineries and disrupt shipping to and from the United States.
Reporting by Marc Jones; Editing by Catherine Evans