By Atul Prakash
LONDON (Reuters) - Global shares slipped to a one-month low on Tuesday as markets braced for a Federal Reserve meeting, when investors will be looking for clues on whether the U.S. central bank could raise interest rates sooner than previously expected.
The MSCI world equity index, which tracks shares in 45 countries, was down 0.2 percent after hitting its lowest level since mid-August earlier in the session. In Europe, the benchmark FTSEurofirst 300 was down 0.4 percent.
Speculation that the Fed could raise interest rates sooner and faster than previously expected has rattled share markets around the globe and supported the U.S. dollar.
"The Fed is moving from a position of outright support, as we saw in the years after the financial crisis, to thinking about an exit strategy and the normalisation of policy and that could have some uncomfortable side effects," Henk Potts, director of global research at Barclays, said.
"The much bigger question is where interest rates will be in the medium term and where they will settle in the longer term."
The Fed will begin its two-day policy meeting later on Tuesday, and investors will be scanning the outcome for clues on the timing of the first rate hike in more than eight years. The Fed will also release economic and interest rate projections, extending their forecast horizon through 2017.
It has said it does not expect to raise rates until 2015, but recent strong U.S. economic data has led Fed officials to acknowledge they may need to act sooner than they thought just a few months ago.
Asian shares also slipped. MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.7 percent to its lowest since late June, while Japan's Nikkei snapped a five-session winning streak to close down 0.2 percent.
Investors in Europe were also jittery ahead of a historic independence poll in Scotland on Thursday, with opinion polls suggesting the referendum remained too close to call.
In the currency market, the dollar index, which hit a 14-month peak on Sept. 9 and is on its longest weekly winning streak since 1997, was almost unchanged at 84.272.
The euro held steady at $1.2937, hemmed in a $1.2859-$1.2980 range after a sell-off sparked by the European Central Bank's interest rate cut early this month faded. Traders awaited the German ZEW sentiment data, due at 0900 GMT, for hints about the single currency's outlook in the near term.
The yield on the benchmark 10-year U.S. Treasury note stood at 2.563 percent, compared with Monday's U.S. close of 2.591 percent. It hit a two-month high of 2.651 percent on Monday, before paring its rise on news of a drop in U.S. manufacturing output last month.
In Europe, German 10-year yields fell back below 1 percent ahead of the German ZEW survey, which is expected to show investor confidence in the region's biggest economy remained downbeat.
"The ZEW has been quite a disappointment in the past releases. The consensus is seeing a further downgrading of the current conditions and expectations' component," said Christian Lenk, a strategist at DZ Bank.
"It's a sentiment indicator by financial analysts so it's usually quite fickle. I doubt that it will have a major market impact as there are other major events looming in the near term."
Oil prices were steady with Brent crude trading at just below $98 a barrel, holding gains after recovering from a more than two-year low but capped by a soft global economic outlook.
(Additional reporting by Emelia Sithole-Matarise, Lisa Twaronite and Hideyuki Sano; Editing by Susan Fenton)
