GLOBAL MARKETS-Oil down as Saudi output restored; stocks steady as Fed meets

* Oil drops as Saudi output seen rebounding soon

* Treasury yields edge down ahead of Fed policy decision

* Wall Street mixed as investors await interest rate cut

(Updates to U.S. afternoon, adds oil settlement details)

By Saqib Iqbal Ahmed

NEW YORK, Sept 17 (Reuters) - Oil prices dropped sharply on

Tuesday after Saudi Arabia's energy minister said the kingdom

has fully restored its oil production after having been hit by

an attack this weekend that shut 5% of global oil output.

Stocks were little changed on the day and U.S. Treasury

yields slipped ahead of an expected interest rate cut by the

Federal Reserve at the conclusion of its two-day policy meeting

on Wednesday.

The oil market remained on tenterhooks over the threat of

retaliation for attacks on Saudi Arabian crude oil facilities on

Saturday. During a news conference on Tuesday, Saudi Arabia's energy

minister also said it will keep its full oil supply to its

customers this month. Brent crude LCOc1 futures settled at $64.55 a barrel, down

$4.47, or 6.48%. WTI crude CLc1 futures settled at $59.34 a

barrel, down $3.56, or 5.66%.

MSCI's All-Country World Index .MIWD00000PUS , which tracks

shares across 47 countries, was up 0.08% on the day.

On Wall Street, stocks opened slightly weaker before

recovering ground to trade little-changed on the day, as

investors shunned big bets ahead of the Fed's policy decision.

"It's just typical trading on the vigil of a Fed meeting,"

said Peter Cardillo, chief market economist at Spartan Capital

Securities in New York.

The Dow Jones Industrial Average .DJI fell 10.17 points,

or 0.04%, to 27,066.65, the S&P 500 .SPX gained 1.46 points,

or 0.05%, to 2,999.42 and the Nasdaq Composite .IXIC added

10.52 points, or 0.13%, to 8,164.06.

With the retreat in oil prices, shares of energy companies,

which had risen hard on Monday, gave up a lot of the gains.

European shares slipped slightly even as investors sought

refuge in oil stocks and defensive sectors in response to

heightened volatility after the attacks in Saudi Arabia.

The pan-European STOXX 600 index .STOXX closed down 0.05%.

U.S. Treasury yields edged lower as traders bided their time

before the Fed decision on rates. While a rate cut is seen as near-certain this week, there

are deep disagreements among Fed policymakers on whether a

reduction in borrowing costs now or further decreases are

warranted. Investors will focus on the so-called "dot plot,"

which shows where policymakers expect rates to be in the future.

"The dot plot will be interesting. I would expect to see a

lot more dispersion between all the dots going forward

especially as we know there are a lot of contrasting views at

the Fed right now," said Justin Lederer, an interest rate

strategist at Cantor Fitzgerald in New York.

Benchmark 10-year notes US10YT=RR were last up 12/32 in

price to yield 1.8031%, down from 1.843% on Monday.

Investors were also watching an overnight spike in dollar

funding costs after the overnight rate, or the cost for banks

and Wall Street dealers to borrow dollars USONRP= , surged to

10% on Tuesday, the highest since at least January 2003,

according to Refinitiv data. In currency markets, the dollar slipped in choppy trading,

moving within narrow ranges. With investors adopting a wait-and-see approach ahead of the

Fed meeting, gold prices were steady. Spot gold XAU= was 0.34%

higher at $1,503.0474 per ounce.

GRAPHIC-World FX rates in 2019 http://tmsnrt.rs/2egbfVh

GRAPHIC-Global assets in 2019 http://tmsnrt.rs/2jvdmXl

GRAPHIC-MSCI All Country Wolrd Index Market Cap http://tmsnrt.rs/2EmTD6j

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>