NEW YORK (Reuters) - A set of strong U.S. earnings reports lifted the S&P 500 stock index to a record closing high on Tuesday, while oil prices rallied on Saudi Arabia’s pledge to cut exports in August and copper hit a two-year high.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., July 19, 2017. REUTERS/Brendan McDermid

The dollar edged up after hitting its lowest level since June 2016 as the Federal Reserve began a two-day policy meeting.

The Fed was expected to discuss its monetary policy stance and the timing of a long-awaited balance sheet reduction, a plan seen as likely to be detailed in September. No change to U.S. interest rates was expected.

There is a growing sense that the Fed will want to tread carefully amid signs of subdued U.S. inflation, and markets were reflecting that.

Investors also are watching developments in Washington, where the U.S. Senate voted to begin formal debate of healthcare legislation that would repeal major elements of Obamacare and possibly replace it with a less costly program.

There has been widespread concern that a failure to pass healthcare legislation reflects discord that will make budget negotiations acrimonious, raising the risk that debt payments due in October may be delayed as the United States bumps up against the debt ceiling.

“Right now, it’s kind of risk on. There’s been a certain amount of pullback based on concerns about politics and earnings growth. With politics, arguably the worst has happened with healthcare. There’s only the possibility of a pleasant surprise now,” said Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Massachusetts.

“We’ve seen earnings come, in aggregate, well above what was expected. So basically the corporate fundamentals are ratifying what the market has been saying all along,” McMillan said.

In the U.S. stock market, volatility was muted with the CBOE Volatility Index .VIX, Wall Street's fear gauge, at a more than 23-year low.

Upbeat results from Caterpillar Inc CAT.N and McDonald's Corp MCD.N boosted stocks, along with gains in bank shares.

The Nasdaq also hit a record high close, even though shares of Google parent Alphabet Inc GOOGL.O slid 2.9 percent after the company late on Monday flagged rising costs.

The Dow Jones Industrial Average .DJI was up 100.26 points, or 0.47 percent, to 21,613.43, the S&P 500 .SPX gained 7.17 points, or 0.29 percent, to 2,477.08 and the Nasdaq Composite .IXIC added 1.37 points, or 0.02 percent, to 6,412.17.

MSCI's index of stock markets across the world .MIWD00000PUS was up 0.2 percent, while European shares .FTEU3 rose 0.5 percent.

The dollar index .DXY, which measures the greenback against a basket of currencies, was last up 0.2 percent. It earlier hit its lowest level since June 2016 at 93.638.

The euro EUR= rose to its highest since August 2015 and was just below a 2-1/2-year peak, boosted by a stronger-than-expected German business survey. The euro was last up 0.1 percent at $1.1647.

U.S. Treasury yields rose as stocks hit record highs, reducing demand for safe-haven bonds.

Benchmark 10-year notes US10YT=RR dropped 20/32 in price to yield 2.33 percent, up from 2.25 percent on Monday.

In commodities, U.S. crude CLc1 jumped 3.3 percent to settle at $47.89 a barrel, the highest close in more than a month, a day after U.S. oil producer Anadarko said it would cut capital spending plans and Saudi Arabia vowed to reduce exports.

Brent crude LCOc1 also added 3.3 percent to settle at $50.20, extending Monday's 1.1 percent rise.

Oil extended gains in post-settlement trading after data from the American Petroleum Institute showed a much-bigger-than-expected draw in U.S. crude inventories.

Copper prices hit their highest in more than two years, boosted by signs of demand from China and a weak dollar. Copper CMCU3 on the London Metal Exchange ended up 3.3 percent at $6,225 a tonne, having earlier touched $6,234.50 a tonne, its highest since May 2015.