European shares close lower; U.S. Treasury yields fall

By Stephanie Kelly

NEW YORK (Reuters) - European shares closed lower as U.S. stock indexes advanced on Wednesday ahead of a widely expected interest rate increase by the Federal Reserve, while U.S. Treasury yields fell on disappointing inflation data.

MSCI's gauge of stocks across the globe rose to a record high, gaining 0.20 percent.

The Fed is expected to raise benchmark U.S. rates to between 1.25 and 1.50 percent at a two-day policy meeting ending Wednesday.

"They're going to be paying special attention to the unemployment numbers and whether or not the stage is getting set for wage inflation," said Jerry Paul, senior vice president of fixed income at ICON Advisers in Denver, Colorado.

"Obviously they're going to care about what the (U.S.) tax package looks like," he added.

The pace at which the Fed and other central banks will tighten monetary policy is considered a top factor in extending the current bull market into 2018.

The pan-European FTSEurofirst 300 index closed down 0.30 percent.

Wall Street indexes advanced, with the S&P 500 and the Dow reaching record highs earlier in the day. Industrials helped push stocks higher in afternoon trading with a surge in Caterpillar and Boeing.

Industrials are expected to benefit the most from an overhaul of the tax bill, on which Republican leaders of both the Senate and the House reached a deal on Wednesday.

The Dow Jones Industrial Average rose 101.85 points, or 0.42 percent, to 24,606.65, the S&P 500 gained 2.12 points, or 0.08 percent, to 2,666.23 and the Nasdaq Composite added 13.84 points, or 0.2 percent, to 6,876.16.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan climbed 0.68 percent.

Japan's Nikkei stock index <.N225> finished 0.47 percent lower, however, pressured by a strengthening yen and shrugging off upbeat economic data that showed Japanese core machinery orders rose an unexpectedly high 5 percent in October.

YIELDS, DOLLAR INDEX FALLS

U.S. Treasury yields fell after an increase in core consumer prices in November fell short of analysts' expectations, reducing bets on a broad pickup in inflation.

Benchmark 10-year notes last rose 7/32 in price to yield 2.3779 percent, compared with 2.403 percent late on Tuesday.

The 30-year bond last rose 20/32 in price to yield 2.7499 percent, compared with 2.781 percent late on Tuesday.

Earlier Wednesday data showed the U.S. consumer price index, the government's broadest inflation gauge, grew 0.4 percent last month, matching economists' estimates.

However the CPI core rate, which excludes energy and food prices, moderated to 0.1 percent from a 0.2 percent increase in October and was below market expectations.

Traders also mulled the potential implications of Democrat Doug Jones' victory in the special U.S. Senate election in Alabama on Tuesday, which thinned the Republicans' Senate majority to 51-49, raising discussion about their ability to pass tax legislation before year-end.

The dollar index , which weighs the greenback against a basket of currencies, fell 0.3 percent, while the euro was up 0.27 percent to $1.1772.

The yen strengthened 0.47 percent against the greenback to 113.03 per dollar , while sterling was last trading at $1.3357, up 0.32 percent on the day.

Italian bonds were firmly in play. Yields jumped on reports that a long-anticipated national election will be held on March 4, raising concerns about political stability.

U.S. crude fell 0.6 percent to $56.80 per barrel and Brent was last at $62.58, down 1.2 percent.

Spot gold added 0.4 percent to $1,248.50 an ounce.

(Reporting by Stephanie Kelly in New York; Additional reporting by Rama Venkat Raman and Sruthi Shankar in Bengaluru, Richard Leong and Karen Brettell in New York, Danilo Masoni in Milan and Julien Ponthus in London; Editing by Steve Orlofsky and James Dalgleish)