* European shares open down, Asia stocks up just 0.1 pct
* Fed tipped to hike rates 25 bps later on Wednesday
* Some caution in case Fed hints at faster pace of
* Dollar steady, U.S. bond yields fall
* Oil prices fall as concerns about oversupply resurface
By Dhara Ranasinghe
LONDON, Dec 14 World stocks nudged lower, bond
yields fell and a hush settled on the dollar, with investors
certain the Federal Reserve will lift interest rates for the
first time in a year on Wednesday but less so about what it may
do in 2017.
European shares lost 0.3 percent in early trade,
while U.S. stock futures were also a tad weaker,
suggesting a cautious start to trade after Tuesday's stock
market rally to new all-time highs.
Asian stocks outside Japan eked out just a 0.1 percent
gain, while benchmark indices in Japan
and China dithered either side of flat with investors
reluctant to push shares much higher before the Fed meeting.
The Fed is widely tipped to lift rates 25 basis points to
0.50-0.75 percent when it concludes a two-day policy meeting on
Wednesday. Its rate announcement is due at 1900 GMT, followed by
Chair Janet Yellen's news conference 30 minutes later.
It would be the Fed's first interest rate hike in a year and
its second since the financial crisis.
With a rise fully priced in by markets, eyes are on the
Fed's economic and rate "dot plots" for a sense of how
policymakers think President-elect Donald Trump's policies will
impact growth and inflation.
"Last year the Fed guided the markets to expect at least
four rate rises this year, guidance that proved to be woefully
wide of the mark, and it is likely that they won't want to make
the same mistake again," said Michael Hewson, chief market
analyst at CMC Markets.
"That suggests that Fed chief Janet Yellen can expect some
serious cross-examination of how the FOMC view not only the
economy, but also President elect Donald Trump's plans for it."
For others, Yellen's challenge is how to signal further rate
increases without triggering strong gains in the dollar that
could undermine growth.
The dollar index, which measures the greenback
against a basket of six major currencies, hit 14-year peaks last
month on expectations for higher inflation and interest rates.
The euro traded at $1.0613 on Wednesday, not far from
the recent 20-month trough at $1.0505. The dollar was likewise
steady on the yen at 115.12, while the dollar index was
little changed at 101.02.
"Janet Yellen is in a corner for the December meeting," said
Nicolas Forest, global head of fixed income at Candriam
Investors Group. "She has to hike interest rates but the dollar
is strong, so she has to decide between a dovish and a hawkish
U.S. YIELDS LOWER
Treasuries have already priced in a rate hike and more, with
10-year yields pulling back from peaks seen earlier this week
just above 2.5 percent.
In contrast to the Fed, the European Central Bank only last
week extended its asset-buying campaign and moved to purchase
more short-term debt.
As a result, the spread between U.S. and German two-year
yields is at its widest since late 2005, with Treasuries
offering a mouth-watering premium of 191 basis points.
Speculation that a Trump administration will implement more
debt-financed fiscal stimulus and cut regulation helped all
three major U.S. stock indexes to record highs this week. The
Dow ended fewer than 100 points from the 20,000 mark.
Bank of America Merrill Lynch's latest survey of investors
found expectations of global growth at 19-month highs and
inflation at the second highest percentage in 12 years.
Fund managers were their most optimistic about corporate
profits in more than six years and allocations to bank stocks
surged to an all-time peak.
Bulk commodities from iron ore to coal have also benefited
from the reflation trade, combined with signs of stronger growth
in China. Again, any hint the Fed might step up the pace of
tightening could undo some of those gains.
Oil ran into profit-taking following a reported rise in U.S.
crude inventories and an estimate that OPEC may have produced
more crude in November than previously thought.
U.S. crude futures, which hit a high of $53.41 on
Tuesday, were down 60 cents at $52.38 a barrel. Brent crude
eased 23 cents to $55.20.
For Reuters new Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Additional reporting by Wayne Cole in SYDNEY; Editing by Hugh