GLOBAL MARKETS-Oil sheds gains, stocks dip as Fed comes into focus

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

* Oil futures pull back, but risks to sentiment remain

* Stocks edge lower as risks remain

* Focus turns to Wednesday Federal Reserve meeting

By Ritvik Carvalho

LONDON, Sept 17 (Reuters) - Oil shed some of its gains on

Tuesday as the United States raised the possibility of releasing

crude reserves, while stocks inched lower as investors waited

for this week's Federal Reserve meeting.

Investors were noncommittal before the expected interest

rate cut from the Fed on Wednesday and the next round of

U.S.-China trade talks on Thursday.

U.S. stocks futures were lower ESc1 NQc1 , indicating an

open in the red on Wall Street. .N

European shares opened lower, with energy stocks giving up

gains as crude prices eased. The pan-European STOXX 600 .STOXX

index dropped 0.2%. .EU

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

shares across 47 countries, was down 0.1% on the day.

In Asia, MSCI's broadest index of Asia-Pacific shares

outside Japan .MIAPJ0000PUS was down 0.76%. Chinese shares

.CSI300 fell 1.68%. Hong Kong shares .HSI slumped 1.23%.

Brent crude oil LCOc1 , the international benchmark, fell

1.78% to $67.79 per barrel on Tuesday. On Monday, it surged as

much as 14.6% for its biggest one-day percentage gain since at

least 1988. O/R

U.S. West Texas Intermediate CLc1 futures were down 1.70%

to $61.85 per barrel following a 14.7% surge on Monday, the

biggest one-day gain since December 2008.

Saturday's attack on Saudi oil facilities has halved the

kingdom's oil output, creating the biggest disruption to global

oil supplies in absolute terms since the overthrow of the

Iranian Shah in 1979, International Energy Agency data show.

U.S. President Donald Trump has authorised the release of

emergency crude stockpiles if needed, which could ease some

upward pressure on crude futures. Trump said on Monday it looked like Iran was behind the

attacks but stressed that he did not want to go to war, striking

a slightly less bellicose tone than his initial reaction.

Iran has rejected U.S. charges that it was behind the

attacks. Tension between the two countries was already running

high over Iran's suspected ambitions to assemble nuclear

weapons. The strikes in Saudi Arabia are likely to raise

regional tensions further.

SPARE CAPACITY

"Although Saudi Arabia's spare capacity and U.S. Strategic

Petroleum Reserves could plug some of the lost output, where oil

trades in the near term will be influenced by how long it takes

for Saudi production to fully recover," said Lukman Otunuga,

research analyst at FXTM.

"It is this concern over negative supply shocks amid

geopolitical tensions which should keep oil prices buoyed in the

short term."

The yield on benchmark 10-year Treasury notes US10YT=RR

slipped to 1.8223%. Euro zone government debt yields edged lower

amid the geopolitical uncertainty stemming from the Saudi

attack. The dollar was flat against a basket of other currencies.

.DXY FRX/

The Fed is expected to cut interest rates at a policy

meeting ending on Wednesday, although disagreement exists among

policymakers. Trump on Monday said on Twitter that the Fed should enact a

"big interest rate drop, stimulus". However, historical

precedent suggests the Fed is likely to cut the expected quarter

of a point and go no further. Futures contracts tied to the Fed's policy rate imply a

64.9% chance the U.S. central bank will cut its benchmark rate

by a quarter of a point to a range of 1.75% to 2% on Wednesday.

Gold prices were higher by 0.04% at $1,498.52 per ounce.

XAU= GOL/

"To have a lasting impact on gold, much higher oil prices

would be needed, i.e. well above $80 per barrel, in order to

trigger a major inflationary shock, hitting the economy and

slowing global growth," said Carsten Menke, commodity analyst at

Julius Baer.