By Richard Hubbard
LONDON (Reuters) - Anxiety over the lack of clarity on U.S. fiscal and monetary policies weighed on world shares and commodity markets on Tuesday, keeping major currencies in tight ranges.
Caution has gripped the markets as a political showdown looms in Washington over budget talks, and as investors try to decipher a string of comments from Federal Reserve officials over the future of its stimulus programme.
"In the short term, it (the market) has got the U.S. budget negotiations and the debt ceiling negotiations to cope with, so that's restraining animal spirits a little bit," said Nick Beecroft, chairman of Saxo Capital Markets.
U.S. stock index futures pointed to a mixed start when Wall Street opens after early weakness in Asian markets and a steady session in Europe left the MSCI world equity index down 0.1 percent for the day.
U.S. Congressional authorisation for the government to keep spending money runs out on September 30, and tensions are rising as lawmakers struggle to pass a "continuing resolution" (CR) needed to avoid a shutdown.
Meanwhile the dollar was hit after a string of comments from Federal Reserve policymakers suggesting the central bank was wary of jeopardising a still fragile U.S. recovery by scaling back its stimulus too early, though its plan to do so by the end of the year was intact.
New York Fed President William Dudley was the latest to fuel the debate, telling CNBC in an interview broadcast on Tuesday, that he "certainty wouldn't want to rule out" a reduction in the central bank's bond-buying programme later this year, adding the Fed expected slower economic growth now than it did in June.
Against the Japanese currency, the dollar fell 0.2 percent to 98.62 yen, although against a basket of currencies it was little changed as the euro slipped.
Dudley's comments helped benchmark 10-year U.S. Treasury yields edge down 2 basis points to around 2.69 percent, off the near two-year high of 3.0 percent hit on September 5.
Fed policymakers have been on the offensive this week explaining the reasons behind the central bank's surprise decision last week not to reduce its asset purchases from the current $85 billion monthly pace, which had been widely expected.
That decision had left investors both encouraged that support for the economy would continue for a while longer but also in some doubt over whether they had overestimated the solidity of the U.S. economic recovery.
GERMAN GROWTH
The single currency eased against the dollar after German data came in slightly below expectations, although it showed the euro zone's biggest economy on a firm growth path, and on signs emerged that the European Central Bank stood ready to keep supporting the economy.
The Munich-based Ifo think tank said business morale improved slightly to its highest level in 17 months in September, with the key export sectors looking strong.
"The further rise in German Ifo business sentiment confirms that the economy is recovering, but we continue to expect growth to be reasonably sluggish," said Ben May, a European economist at Capital Economics.
The euro was still holding near weaker levels reached on Monday when European Central Bank President Mario Draghi said he was ready to inject more liquidity into banking markets if necessary to support the economy.
Those remarks were backed up by ECB policymaker Ewald Nowotny on Tuesday who said any withdrawal of the current level of policy support would have to be implemented extremely carefully.
COMMODITIES SLIDE
In commodity markets, gold slipped for a fourth straight session, shedding 0.4 percent to $1,317.10 an ounce as investors fretted over what the Fed will do next.
The story was much the same in copper futures which held at $7,227.51, from last week's peak of $7,368.00.
Worries that money printing by central banks to buy assets will stoke inflation have helped boost the price of metals like gold, usually seen as an inflation-hedge.
An easing in geopolitical tensions was the main factor driving oil markets as signs of a reconciliation between Iran and the West over its nuclear policies raised hopes of greater supplies.
Iran has agreed to new talks on its nuclear programme with top diplomats from six world powers, including U.S. Secretary of State John Kerry, raising hopes that Tehran's relations with the United States could thaw.
"Geopolitical tensions are reducing and oil output is rising so these two factors are driving oil futures to moderate," IHS analyst Victor Shum said.
November U.S. crude was off 41 cents at $103.18 a barrel, down for a fourth day, and Brent crude for November fell 33 cents to $107.83 per barrel. (Editing by Hugh Lawson and Susan Fenton)
