GLOBAL MARKETS-World shares edge lower, US yields drop as investors await Fed

By Chibuike Oguh and Sara Rossi

NEW YORK/LONDON, Sept 16 (Reuters) - An index of world equity markets edged lower after hitting a record high on Tuesday ahead of the widely expected start of the Federal Reserve's interest rate cutting cycle, while U.S. Treasury yields and the dollar fell.

MSCI's all-country index .MIWD00000PUS was down 0.04% after rising as far as 978.74, a record high. Wall Street stocks erased earlier session gains and were trading lower, with utilities and financials driving losses while energy and consumer discretionary shares were leading the gains.

The Dow Industrial Average .DJI fell 0.38% to 45,706.94, the S&P 500 .SPX fell 0.11% to 6,607.70 and the Nasdaq Composite .IXIC fell 0.02% to 22,344.47.

The pan-European STOXX 600 .STOXX dropped 0.83%, led by declines in rate-sensitive banks .SX7E and insurers .SXIP, which stand to lose out if the European Central Bank does not cut euro zone rates much more.

"Today is more of a sideways move than anything else," said Mark Hackett, chief market strategist at Nationwide. "It felt like yesterday where we had a little bit of a surge and today a little bit of a pullback. But the reality is this is all just waiting to see what happens tomorrow afternoon."

The Fed is expected to cut its benchmark interest rate by a quarter of a percentage point to the 4.00%-4.25% range at the end of its monetary policy meeting on Wednesday.

The U.S. Senate narrowly confirmed Stephen Miran to the central bank's Board of Governors and a U.S. appeals court separately declined to let President Donald Trump fire Fed Governor Lisa Cook.

The yield on benchmark U.S. 10-year notes US10YT=RR was flat at 4.034%. The 2-year note US2YT=RR yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 1.7 basis points to 3.518%.

"You've had a really incredible run in the past couple of weeks: five out of the last six weeks positive ... record highs pretty much across the board. To me this is just a pause and a sideways, wait-and-see movement rather than a significant drop," Hackett said.

Bets on Fed cuts have in turn kept pressure on the dollar, which on Tuesday fell to its lowest since July 4 against a basket of currencies =USD.

The dollar weakened 0.58% against the Japanese yen JPY=EBS to 146.56 and fell 0.84% to 0.788 against the Swiss franc CHF=EBS.

The euro EUR=EBS traded at its highest since September 2021 against the dollar. It was last up 0.72% at $1.1844. Sterling GBP=D3 climbed to its highest in more than two months at $1.3656.

The dollar index =USD fell 0.59% to 96.77.

Gold rose as the dollar weakened. Spot gold XAU= rose 0.29% to $3,689.33 an ounce.

Oil prices rose as markets weighed a potential disruption of supplies from Russia due to Ukrainian drone attacks on its ports and refineries.

Brent crude futures LCOc1 were up 1% at $68.16 a barrel. U.S. West Texas Intermediate crude CLc1 was at $64.24, up 1.42%.