Global Markets - Stocks, dollar edge lower as countdown to Fed begins

By Caroline Valetkevitch

NEW YORK (Reuters) - World stock indexes and the U.S. dollar eased on Wednesday ahead the U.S. Federal Reserve's statement and expected interest rate increase, with investors bracing for what the central bank may signal about future hikes.

Expectations that the Fed would take a cautious stance on its rate outlook caused investors to take profits in the dollar, which has gained nearly 4 percent between the Nov. 8 U.S. election and last Friday.

The Fed is widely predicted to lift interest rates 25 basis points to 0.50-0.75 percent at the end of a two-day meeting on Wednesday, which would be its first rate hike in a year and its second since the financial crisis. The rate announcement is due at 2 p.m. EST (1900 GMT), followed by Chair Janet Yellen's news conference 30 minutes later.

Investors will be examining the central bank's statement and economic forecasts for any signs of how policymakers think President-elect Donald Trump's election affects the outlook for growth and inflation.

"It is not that (investors) are not expecting a rate hike from the Fed, it is the element of the unknown which Yellen would deliver in her statement," said Naeem Aslam, chief market analyst at Think Markets.

Some analysts said the dollar's weakness showed a bias among market participants that the Fed also may hint at financial conditions having already tightened, given the surge in U.S. Treasury yields and rally in the dollar in the wake of the Nov. 8 election.

The challenge for the central bank may be 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, was last down 0.3 percent at 100.770.

U.S. stocks edged lower following Tuesday's rally to all-time highs, led by losses in energy shares.

The Dow Jones industrial average fell 34.59 points, or 0.17 percent, to 19,876.62, the S&P 500 lost 5.94 points, or 0.261476 percent, to 2,265.78 and the Nasdaq Composite dropped 6.86 points, or 0.13 percent, to 5,456.97.

MSCI's all-country world stock index was down 0.2 percent, the pan-European STOXX 600 share index ended down 0.5 percent.

Treasuries have already priced in a rate hike and more.

Yields on longer-dated U.S. Treasuries touched session lows early as weaker-than-forecast rise in retail sales in November reduced expectations of a pickup in U.S. consumer spending in the fourth quarter.

The benchmark 10-year Treasury yield fell to a session low of 2.426 percent. It was last at 2.437 percent, down 4 basis points from late on Tuesday, according to Reuters data.

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.

Oil prices were down after data from the American Petroleum Institute late on Tuesday showed U.S. crude inventories unexpectedly rose last week, though they pared losses after another report showed a smaller-than-expected build in stockpiles.

U.S. crude futures, which hit a high of $53.41 on Tuesday, were down 71 cents at $52.27 a barrel. Brent crude eased 70 cents to $55.03.

Spot gold was up 0.4 percent at $1,162.46 an ounce.

(Additional reporting by Sam Forgione in New York, Dhara Ranasinghe in London and Tanya Agrawal in Bengaluru; Editing by Robin Pomeroy and Nick Zieminski)