Asian stocks edge higher amid low risk appetite; oil firm

HONG KONG (Reuters) - Asian stocks edged higher and the dollar consolidated recent gains on Tuesday though risk appetite was low as weak U.S. markets prompted investors to stay on the sidelines.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.2 percent in early trade. Australia's benchmark index <.AXJO> was up 0.3 percent.

As campaigning for the U.S. presidential elections enters its home stretch and concerns about the Chinese economy deepen after weak trade data last week, risk aversion is broadly on the rise forcing investors to cut positions after a strong rally in risky assets in the third quarter of 2016.

Daily portfolio flows to emerging markets declined sharply last week with the seven-day moving average declining to its lowest level since a surprise Chinese currency devaluation in August 2015, according to flows data from Institute of International Finance.

An index measuring broad market volatility and risk appetite <.VIX> was trading above 16, adding to recent gains. A market volatility gauge <.VHSI> for Hong Kong stocks was flirting with the 20 level.

Adding to the headwinds for emerging markets is the growing likelihood of a U.S. rate increase in December which has lifted 10-year U.S. treasury yields up by 25 basis points so far this month and boosted the dollar.

"Despite the 'lower for longer' rhetoric, the expected case for a December rate hike remains on course, yet given the division in the FOMC it is far from done," said Stephen Innes, a senior trader at FX broker OANDA, referring to the U.S. central bank's Federal Open Market Committee.

Stocks moved lower after comments from Federal Reserve Vice Chairman Stanley Fischer, who said economic stability could be threatened by low interest rates, but it was "not that simple" for the Fed to raise rates.

Wall Street ended lower as lower oil prices weighed on energy shares. The Dow Jones industrial average fell 0.29 percent, to 18,086.4, the S&P 500 slipped 0.3 percent to 2,126.5 and the Nasdaq Composite dropped 0.27 percent, to 5,199.82. [.N]

In forex markets, major currencies were confined in broad trading ranges on the back of soggy U.S. data and the absence of fresh triggers.

The dollar <=USD> edged slightly lower against a basket of currencies after hitting a seven-month high in the previous session. The yen bounced around near 104 to the dollar.

Oil prices were broadly steady, as oversupply concerns with a spike in trade volume kept U.S prices below $50 a barrel, but losses were limited amid a projected drop in American shale output.

International benchmark Brent crude was up 0.4 percent while U.S. West Texas Intermediate (WTI) edged 0.3 percent higher.

Safe-haven gold was firm around the $1250 per ounce level as growing risk aversion encouraged buyers, halting a 6 percent fall over the last few weeks.

(Reporting by Saikat Chatterjee; Editing by Eric Meijer)