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* Investors watching for signs of faster policy
normalisation
* Fed statement due at 1800 GMT
* European shares open weaken
* Graphic: Global asset performance http://tmsnrt.rs/2yaDPgn
* Graphic: World FX rates http://tmsnrt.rs/2egbfVh
By Dhara Ranasinghe
LONDON, March 17 (Reuters) - Caution descended on markets on
Wednesday with world stocks holding below recent record highs as
investors waited to see whether the U.S. Federal Reserve would
signal a faster path toward policy normalisation than previously
expected.
The U.S. central bank ends a closely anticipated two-day
meeting later in the day, after a sharp rise in U.S. Treasury
yields this year on expectations for stronger growth and
inflation.
The Fed is expected to forecast that the U.S. economy will
grow in 2021 at the fastest rate in decades. But investors who
expect rosier projections to translate to any change in monetary
policy will probably be disappointed.
"This is one of the most important Fed meetings we've had
for some time and the impact will be felt across asset classes,"
said Seema Shah, chief strategist at Principal Global Investors.
"Markets are hoping for reassurance from the Fed that rising
bond yields are not something to worry about, and that takes a
bit of steam out of the bond market."
Before the Fed statement at 1800 GMT, calm prevailed across
world markets.
MSCI's world equity index was down 0.1%, but
keeping last month's record highs within sight.
European shares were a touch softer ,
while in Asia, an index of regional equities excluding Japan
pulled back 0.4%. Japan's Nikkei 225
closed flat.
There was some good news for AstraZeneca as
Australia's pharmaceutical regulator said the rollout of the
company's COVID-19 vaccine would continue, even though many
European nations have paused vaccinations to investigate
reported side-effects.
U.S. stock futures pointed to a flat open on Wall
Street, after the S&P 500 lost 0.16% on Tuesday.
DOVISH?
Benchmark 10-year Treasury yields were a touch
higher at 1.63%, holding near 13-month highs reached on Friday.
They have risen 72 basis points so far this year. That compares
with a 24 bps increase in German peers and a 7 bps
rise in Japanese borrowing costs.
Inflation expectations have also ticked higher with the
break-even rate on 10-year Treasury Inflation-Protected
Securities (TIPS) on Tuesday rising above 2.3% for
the first time since July 2014. The break-even rate for 30-year
TIPS hit 2.24%, the highest since September 2014.
"We expect (Fed Chair Jerome) Powell to note the FOMC has
the tools to intervene if the bond market becomes disorderly or
constrains the economic recovery," analysts at Commonwealth Bank
of Australia wrote.
"But we expect Powell to push back against talk of policy
tightening because of the large amount of labour market slack
... U.S. bond yields and the U.S. dollar could jump if the
FOMC’s post-meeting statement and Powell’s statement are not
deemed dovish enough."
An index tracking the dollar against six major peers
was around 91.92. The euro was weaker on the day at $1.1892
. The dollar was up about 0.1% at 109.13 yen.
Currency market caution may extend all week, with the Bank
of England meeting on Thursday and the Bank of Japan wrapping up
a policy review on Friday, in which it may phase out a numerical
target for its asset buying.
Elsewhere, oil prices slipped for a fourth day as concern
about weaker demand in Europe outweighed an industry report that
showed U.S. crude stockpiles unexpectedly fell last week.
Brent crude futures fell 27 cents to $68.12 a barrel
and U.S. crude futures slipped 14 cents to $64.65.
For Reuters Live Markets blog on European and UK stock
markets, please click on:
(Reporting by Dhara Ranasinghe; Additional reporting by Kevin
Buckland in Tokyo; editing by Larry King)
