(Adds U.S. market open, byline, dateline; previous LONDON)
* S&P 500 hits record high on Merck, Pfizer results
* Poor earnings cloud European equities
* Oil gains as trade tensions ease, U.S. equities rise
* Dollar slips as market expects Fed rate cut
* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
By Herbert Lash
NEW YORK, Oct 29 (Reuters) - World stocks edged higher on Tuesday, lifted by strong earnings from big U.S. drugmakers Merck and Pfizer and expectations of another dose of policy stimulus from the U.S. Federal Reserve, while oil prices pared earlier losses.
European shares slid as they headed toward their worst quarterly earnings in more than three years, according to the latest estimates by Refinitiv, underscoring concerns about the deteriorating health of Europe Inc.
The benchmark U.S. S&P 500 index eked out a fresh record high, led by Merck and Pfizer, though a disappointing profit report from Google parent Alphabet kept the technology-rich Nasdaq in the red.
The index breached its all-time high set in July on Monday, spurred by hopes of a U.S.-China trade deal and expectations of another Fed rate cut.
The steepening of the two- and 10-year yield curve suggests a budding risk-on sentiment among investors, now that some form of a U.S.-Sino trade agreement is likely, said Yousef Abbasi, global market strategist at INTL FCStone Financial in New York.
U.S. President Donald Trump said on Monday he expected to sign a significant part of a trade deal with China ahead of schedule but did not elaborate on the timing.
The spread in the yield curve has gained about 20 basis points since leaving negative territory, a recession indicator, in early September.
A rotation into value stocks that investors have posited for months seems be taking hold, Abbasi said, pointing to recent gains in the SPDR S&P Regional Banking ETF as evidence. The ETF has traded below 56 since May and could be set for further upside after a recent rally from below 50, he said.
"We're seeing some of those high-flying tech names struggle," Abbasi said. "We're getting that risk-on move from sectors that have been ignored all year, the sectors that haven't been loved."
Apple and Microsoft fell, as did Amazon.com, while healthcare, the second-worst performing sector in the S&P 500 this year, rose.
MSCI's gauge of stocks across the globe gained 0.12%, while the pan-European STOXX 600 index lost 0.37%. MSCI's emerging markets index was off a scant 0.03%.
On Wall Street, the Dow Jones Industrial Average rose 5.13 points, or 0.02%, to 27,095.85 and the S&P 500 gained 3.82 points, or 0.13%, to 3,043.24. But the Nasdaq Composite dropped 30.59 points, or 0.37%, to 8,295.40.
Oil pared losses amid rising U.S. equities and hopes of easing U.S.-China trade tensions.
Brent crude fell 10 cents at $61.47 a barrel, while U.S. West Texas Intermediate crude slid 3 cents to $55.78.
Britain's FTSE 100 fell 0.34% as uncertainty over a looming general election compounded a 4.0% drop in shares of BP after the oil major posted a sharp drop in third quarter profit.
The losses in Europe followed a mixed performance in Asia, where Japan's Nikkei rose 0.4% to reach levels last seen a year ago. Shanghai blue chips dithered either side of flat.
Benchmark 10-year U.S. notes rose 5/32 in price to yield 1.8349%.
Reporting by Herbert Lash; Editing by Bernadette Baum