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 The MSCI world equity index, which tracks shares in 45 countries,
was down 0.2 percent by 6:47 a.m. EDT after hitting its lowest since
mid-August earlier in the day in Europe. The FTSEurofirst 300
was down 0.5 percent.
Speculation that the Federal Reserve could raise interest rates
sooner and faster than previously predicted has rattled share
markets around the globe and supported the U.S. dollar.
"Generally, there's been some turbulence every time the Fed has
moved from accommodation to tightening," said Jim Paulsen, chief
investment strategist at Wells Fargo Asset Management, which has
$490 billion under management.
"To think that in the mother of all monetary easing cycles, which is
what we're going through, we're going to turn the monetary boat
without any turbulence is unrealistic. But this will bring a lot of
buying opportunities for the long term."
Asian shares also slipped, with MSCI's broadest index of
Asia-Pacific shares outside Japan shedding 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.
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 data has led Fed officials to acknowledge they may need to
act sooner than they thought just a few months ago.
"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 normalization 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."
European investors are also anxious about Thursday's Scottish
independence poll on Thursday. Opinion polls suggest the vote
remains too close to call.
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Some weaker-than-expected economic indicators also weighed. German
analyst and investor morale fell to its lowest since December 2012
in September in a sign the Ukraine crisis was taking its toll on
Europe's largest economy.
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 little changed at 84.212.
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.
The yield on the benchmark 10-year U.S. Treasury note stood at
2.562 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.
Brent crude oil was slightly weaker and stayed under $98 a barrel,
pressured by weak economic data from the world's biggest energy
consumers which pointed to weak demand growth at a time of strong
supply.
(Additional reporting by Blaise Robinson, Emelia Sithole-Matarise;
Lisa Twaronite and Hideyuki Sano; Editing by Ruth Pitchford)
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