Asian shares struggled to keep modest gains on Tuesday and the dollar gave ground as investors trimmed long positions ahead of a Federal Reserve policy meeting expected to repeat a pledge to keep rates low for a long time.
In Europe, financial spreadbetters saw Germany's DAX <.GDAXI> and France's CAC-40 <.FCHI> opening up 0.6 percent and Britain's FTSE 100 <.FTSE> opening up 0.4 percent.
The MSCI index of Asian shares excluding Japan <.MIAPJ0000PUS> rose 0.3 percent after retreating almost 1 percent on Monday and backing off a seven-week high last week.
Sentiment was cautious as investors keep an eye on China for signs of potential policy tightening and wait to see if the Fed will repeat its regular pledge to keep rates low for an extended period later on Tuesday. No rate change is expected.
Markets will be looking for clues on the timing of a U.S. rate hike, said Mitul Kotecha, global head of FX strategy at Credit Agricole CIB in Hong Kong.
Although some FOMC members are growing increasingly uncomfortable with maintaining the language that the Fed Funds rate will remain low 'for an extended period' we believe the comments will be retained in the statement, he wrote in a client note.
A majority of big banks that do business directly with the Fed expect the U.S. central bank will raise benchmark interest rates by the end of this year, according to a Reuters poll on Friday.
Tokyo's benchmark Nikkei average fell 0.3 percent, after touching a seven-week high on Monday, with profit-taking in recent gainers such as Honda Motor <7267.T> and Canon Inc <7751.T> weighing it down.
Investors are also waiting to see if the Bank of Japan eases policy on Wednesday, although analysts say the market has probably priced in such a move. <.T>
The region's outperformer was Thailand <.SETI>, where stocks rose 1.4 percent. Morgan Stanley said in a research note dated March 12 it had upgraded the Thai market to overweight on favorable valuations and outlook for earnings.
But Seoul shares lost early gains, easing 0.1 percent <.KS11>. Steel and telecom issues fell, although auto shares including Hyundai Motor <005380.KS> gained.
In Australia, stocks <.AXJO> ended up 0.3 percent, as miners proved resilient to concerns that China might tighten monetary policy further to prevent overheating following higher than forecast inflation figures last week.
Top miners such as BHP Billiton
Hong Kong shares <.HSI> fell 0.2 percent, weighed down by energy and financial stocks, while Shanghai <.SSEC> stocks reversed losses to rise 0.4 percent, after ending at a five-week low on Monday on expectations of policy tightening.
The Dow Jones industrial average <.DJI> closed up 0.16 percent on Monday, the Standard & Poor's 500 Index <.SPX> rose just 0.05 percent and the Nasdaq Composite Index <.IXIC> slipped 0.23 percent. <.N>
DOLLAR TAKES A STEP BACK
For the Fed, markets will watch how many officials dissent on the statement language after data showed consumers buying more and firms close to hiring again. One official dissented at the last meeting, saying conditions had improved sufficiently to warrant dropping the extended period phase.
The dollar index <.DXY>, a gauge of its performance against six other currencies, slipped 0.2 percent to 80.12, edging back toward a three-week low set on Friday, and the euro inched up to just below $1.37.
The yen was the best performer, gaining on the euro, dollar and higher yielders such as the Australian dollar, as investors locked in profits on positions built up against the Japanese currency ahead of the Bank of Japan meeting.
U.S. crude futures held steady below $80 a barrel after falling 1.8 percent to the lowest close in two weeks on Monday as the dollar remained strong and ahead of U.S. data expected to show another build in crude inventories.
Gold firmed, underpinned by concerns over Europe's debt problems. Spot gold rose to $1,112 an ounce, up more than $4 from New York's notional close. (Additional reporting by Jungyoun Park in SEOUL, Victoria Thieberger in MELBOURNE and Aiko Hayashi in TOKYO; Editing by Kazunori Takada)