GLOBAL MARKETS-Oil sheds gains, stocks inch lower as focus turns to Fed

* 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 massive

gains on Tuesday as the United States flagged the possible

release of crude reserves, while stocks inched lower as

investors remained on the sidelines ahead of this week's Federal

Reserve meeting.

Investors were non-committal ahead of an expected interest

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

U.S.-China trade talks on Thursday.

European shares opened lower, with energy stocks giving up

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

Earlier in Asia, MSCI's broadest index of Asia-Pacific

shares outside Japan .MIAPJ0000PUS was down 0.66%. Chinese

shares .CSI300 fell 1.07%, while Hong Kong shares .HSI

slumped 1.18%.

U.S. stocks futures were flat to slightly lower ESc1

NQc1 , indicating subdued open on Wall Street later.

Brent crude oil LCOc1 , the international benchmark, fell

0.1% to $68.96 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 0.87%

to $62.25 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 even 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."

Gold prices were steady at $1,497.48 per ounce. XAU=

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

fell slightly to 1.8292%.

Euro zone government debt yields edged lower as geopolitical

uncertainty stemming from the attack on Saudi underpinned a

cautious tone in bond markets. The dollar was flat against a basket of peer currencies.

.DXY FRX/

The Fed is expected to cut interest rates at a policy

meeting ending on Wednesday, which could put pressure on the

Bank of Japan to ease policy at a meeting the following day.

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

"big interest rate drop, stimulus".

However historical precedent and the United States' changing

energy diet suggest the Fed is likely to stick with an expected

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

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

overnight lending rate by a quarter of a percentage point to a

range of 1.75% to 2% on Wednesday.

Trump said on Monday that the United States has reached

initial trade agreements with Japan, but traders are also

focused on the U.S.-Sino trade war. "In the next week, positive developments on Brexit and/or

Iran have the potential to move markets higher from here. It

shows why staying strategically invested in equities is

important," said Mark Haefele, chief investment officer at UBS

Global Wealth Management.

"But with scope for central banks to disappoint and global

growth continuing to slow, we see little reason to change our

tactically more cautious stance."

Deputy-level talks between the United States and China are

scheduled to start in Washington on Thursday, paving the way for

high-level talks next month aimed at resolving a bitter trade

row that has dragged on for more than a year.