World stocks hit one-month low, caution ahead of Fed

London (Sept 26)  Global shares hit a one-month low on Tuesday as investors refrained from placing strong bets before a Fed meeting that could adjust expectations about how soon the U.S. central bank will hike interest rates.

The MSCI world equity index .MIWD00000PUS, which tracks shares in 45 countries, was down 0.2 percent by 6:47 a.m. EDT after hitting its lowest since mid-August earlier in the day in Europe. The FTSEurofirst 300 .FTEU3 was down 0.5 percent.

Speculation that the Federal Reserve could raise interest rates sooner and faster than previously predicted has rattled share markets around the globe and supported the U.S. dollar.

"Generally, there's been some turbulence every time the Fed has moved from accommodation to tightening," said Jim Paulsen, chief investment strategist at Wells Fargo Asset Management, which has $490 billion under management.

"To think that in the mother of all monetary easing cycles, which is what we're going through, we're going to turn the monetary boat without any turbulence is unrealistic. But this will bring a lot of buying opportunities for the long term."

Asian shares also slipped, with MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS shedding 0.7 percent to its lowest since late June, while Japan's Nikkei .N225 snapped a five-session winning streak to close down 0.2 percent.

The Fed will begin its two-day policy meeting later on Tuesday, and investors will be scanning the outcome for clues on the timing of the first rate hike in more than eight years. The Fed will also release economic and interest rate projections, extending their forecast horizon through 2017.

It has said it does not expect to raise rates until 2015, but recent strong data has led Fed officials to acknowledge they may need to act sooner than they thought just a few months ago.

"The Fed is moving from a position of outright support, as we saw in the years after the financial crisis, to thinking about an exit strategy and the normalization of policy, and that could have some uncomfortable side effects," Henk Potts, director of global research at Barclays, said.

"The much bigger question is where interest rates will be in the medium term and where they will settle in the longer term."

European investors are also anxious about Thursday's Scottish independence poll on Thursday. Opinion polls suggest the vote remains too close to call.

Some weaker-than-expected economic indicators also weighed. German analyst and investor morale fell to its lowest since December 2012 in September in a sign the Ukraine crisis was taking its toll on Europe's largest economy.

In the currency market, the dollar index .DXY, which hit a 14-month peak on Sept. 9 and is on its longest weekly winning streak since 1997, was little changed at 84.212.

The euro held steady at $1.2937 EUR=, hemmed in a $1.2859-$1.2980 range after a sell-off sparked by the European Central Bank's interest rate cut early this month faded.

The yield on the benchmark 10-year U.S. Treasury note US10YT=RR stood at 2.562 percent, compared with Monday's U.S. close of 2.591 percent. It hit a two-month high of 2.651 percent on Monday, before paring its rise on news of a drop in U.S. manufacturing output last month.

Brent crude oil was slightly weaker and stayed under $98 a barrel, pressured by weak economic data from the world's biggest energy consumers which pointed to weak demand growth at a time of strong supply.

Source: Reuters