Asian stocks steady, oil volatile as Fed looms large

Asian shares steadied in cautious early trade on Tuesday, as investors were reluctant to make any big moves amid volatile crude oil and before a widely anticipated US interest rate increase by the Federal Reserve later this week.

Markets were also foccused on whether the People's Bank of China (PBOC) would continue to guide its currency lower, with traders wary about the central bank's intentions after it set the yuan/dollar official midpoint at 4-1/2-year lows in recent session.

MSCI's broadest index of Asia-Pacific shares outside Japan added 0.1%, while Japan's Nikkei stock index slipped about 0.3%.

On Wall Street, major indexes erased early losses and marked gains, as oil prices recovered slightly. S&P 500 e-mini futures were up 0.4% in Asian trade.

US crude was down 0.2% at $36.24 after falling as low as $34.53 on Monday before ending nearly 2% higher.

Brent crude fell as low as $36.33 a barrel on Monday, its weakest since December 2008. A fall below $36.20 would take oil down to levels not seen since 2004.

Besides the direction of oil prices, the outlook for Fed monetary policy loomed large in the markets' collective consciousness. Investors have mostly priced in a rate hike this week, with the main question now hinging on how many increases will follow next year.

Traders see an 83% chance the Fed will lift its targeted rate range to 0.25% to 0.50% at the two-day policy-setting meeting ending on Wednesday, from the current zero to 0.25% range, according to CME Group's FedWatch programme.

"Most investors would normally look to buy a currency ahead of a rate hike but in the case of the Fed, their well-telegraphed decision could mean more losses for the greenback," Kathy Lien, managing director of FX strategy for BK Asset Management, wrote in a note to clients.

"Everyone who wants to be long dollars ahead of the rate decision is probably long already with more traders moving to the sidelines as the big day nears," she said.

In early Asian trading, the dollar was steady against abasket of currencies at 97.668.

Against its Japanese counterpart, the dollar edged up slightly to 121.10 yen , while the euro was slightly down at $1.0990 .

Spot gold prices were under pressure after they skidded 1% on Monday, with the metal changing hands at $1,062.20 an ounce