By Dhara Ranasinghe
LONDON (Reuters) - Stock markets nudged down from more than three-month highs on Wednesday, while the dollar stumbled as caution took hold ahead of a U.S. Federal Reserve meeting.
After weeks of strong gains, propelled by hopes of a swift economic recovery as coronavirus-induced lockdowns lift, equity markets appear to have run out of steam for now. Support for safe havens from gold to the yen, also pointed to wariness.
European stocks gave up early gains and were broadly negative , holding below recent three-month highs. U.S. stock market futures also headed lower.
MSCI (NYSE:MSCI)'s broadest index of Asia-Pacific shares outside Japan, which has galloped 9% higher in June and is 35% above March lows, rose 0.5%. Japan's Nikkei closed up just 0.15%.
No action is expected from the Fed, but any hint of taking the foot off the pedal could hurt risk sentiment and lift the dollar. More dovishness could have the opposite effect.
Focus is on its economic outlook and whether a steepening of the U.S. yield curve during last week's bond selloff might prompt intervention to keep long-term borrowing costs down.
"At this stage (Fed chief Jerome) Powell will be cautious about being too confident and for markets, there is more of a risk of there being a wobble than a prompt to go higher," said Seema Shah, chief strategist at Principal Global Investors in London.
Data showing the sharpest slump in China's producer prices in four years - pointing to flagging global demand - served as a reminder of the impact the coronavirus pandemic is having on the global economy.
So did the latest outlook from the Organisation for Economic Cooperation and Development (OECD). It said on Wednesday that the global economy will suffer the biggest peace-time downturn in a century before it emerges next year from a coronavirus-inflicted recession.
The MSCI world stock index, up nearly 45% from 4-year lows struck in mid-March, also held just below recent three-month highs.
(GRAPHIC - Asset performance, year-to-date: https://fingfx.thomsonreuters.com/gfx/mkt/jbyprldmjpe/global1006.PNG)
DOWNBEAT DOLLAR
The Fed's policy statement is due at 1800 GMT and is followed by a news conference half an hour later.
Speculation that the Fed could take steps to curb the recent rise in bond yields pushed the dollar down. [FRX/]
The dollar index, which measures the greenback's value against a basket of other major currencies, fell to a fresh three-month low at 96.057 before recovering some ground.
The U.S. currency was down almost 0.4% at 107.35 yen, having hit its lowest in around 1-1/2 weeks.
The euro was a almost a fifth of a percent firmer at $1.1358, while the Aussie dollar last sat at $0.6988, about 0.4% higher on the day.
Ahead of the Fed, the U.S. 10-year Treasury yield fell to around 0.80%, its lowest level in almost a week.
"While we expect the Fed to do its utmost to maintain the dovish tone with the possibility of them re-introducing economic projections, and potentially pushing for a more explicit approach to yield curve control, as it stands risk-on moves look stretched," said Henry Occleston, a rates strategist at Mizuho.
Gold was 0.25% firmer on the day at $1,718 per ounce. [GOL/]
Oil prices were on the back foot on renewed concerns about oversupply and underlying economic weakness. Brent crude was last down 2% at $40.33 per barrel. U.S crude tumbled 2.5% to $37.95 a barrel. [O/R]