GLOBAL MARKETS-World stocks hold fire ahead of Fed, dollar stumbles

* Stocks edge up but caution remains ahead of Fed
* Fed statement due 1800 GMT
* Dollar index touches new three-month lows

By Dhara Ranasinghe
LONDON, June 10 (Reuters) - World stock markets hovered
below three-month highs on Wednesday, while the dollar stumbled
ahead of a meeting of the U.S. Federal Reserve.
After weeks of strong gains, propelled by hopes of a swift
economic recovery as the coronavirus-induced lockdowns lift,
equity markets appear to have run out of steam for now. Support
for safe havens from gold to the yen, also pointed to caution.
European stock markets gained 0.8% in early trade .STOXX ,
but held below three-month highs. MSCI's broadest index of
Asia-Pacific shares outside Japan .MIAPJ0000PUS , which has
galloped 9% higher in June and is 35% above March lows, rose
0.4%. Japan's Nikkei .N225 added 0.15%.
"The Fed tonight is a key variable in determining whether
this is a pit-stop or U-turn," said Vishnu Varathan, head of
economics and strategy at Mizuho Bank in Singapore.
No action is expected from the Fed, but any hint of taking
the foot off the pedal could hurt risk sentiment and lift the
dollar. More dovishness could have the opposite effect.
Focus is on the Fed's economic outlook and whether a
steepening of the U.S. yield curve during last week's bond
market selloff might prompt intervention to keep long-term
borrowing costs down.
"While we expect the Fed to do its utmost to maintain the
dovish tone with the possibility of them re-introducing economic
projections, and potentially pushing for a more explicit
approach to yield curve control, as it stands risk-on moves look
stretched," said Henry Occleston, a rates strategist at Mizuho
in London.
The MSCI world stock index, up nearly 45% from 4-year lows
struck in mid-March .MIWD00000PUS , also held just below recent
three-month highs.
Data showing the sharpest slump in China's producer prices
in four years - pointing to flagging global demand -- also
served as a reminder of the impact the coronavirus pandemic is
having on the global economy. The Fed's policy statement is due at 1800 GMT and is
followed by a news conference half an hour later.
Speculation that the Fed could take steps to curb the recent
rise in bond yields pushed the dollar down. FRX/
The dollar index, which measures the greenback's value
against a basket of other major currencies, fell to a fresh
three-month low at 96.106 =USD .
The U.S. currency was down 0.4% at 107.29 yen JPY=EBS ,
having hit its lowest in around 1-1/2 weeks.
The euro was a touch firmer at $1.1352 EUR=EBS , while the
Aussie dollar AUD=D3 last sat at $0.6991, about 0.5% firmer on
the day.
U.S. Treasury yields were broadly lower, also reflecting a
more cautious tone in world markets with 10-year government bond
yields down 2 basis points at 0.80% US10YT=RR .
Gold was firm at $1,718 per ounce XAU= . GOL/
Oil prices were on the back foot on renewed concerns about
oversupply and underlying economic weakness. Brent crude LCOc1
was last down 1.5% for the session at $40.58 per barrel. U.S
crude CLc1 was 1.9% weaker at $38.21 a barrel. O/R

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