The dollar steadied on Tuesday while Asian stocks wavered as investors turned cautious ahead of a meeting of the U.S. Federal Reserve although Abu Dhabi's decision to throw a lifeline to Dubai continued to bolster risk appetite.

Markets expect the Fed to pledge to maintain very low rates for an extended period following the two-day meeting which begins later on Tuesday, but they will be on guard for any new indications about monetary policy.

Abu Dhabi's surprise decision on Monday to provide Dubai with $10 billion to help its neighbor avoid defaulting on debt has boosted risk appetite among investors globally, helping push the Dow Jones up 0.3 percent to finish at a 14-month high on Monday while Dubai's stock market rallied 10.4 percent.

Asian shares were more subdued after rebounding on Monday on the Dubai news as attention shifted to the Fed meeting but improving risk appetite helped Asian currencies such as the Taiwan dollar.

There's some caution ahead of the Fed meeting. I don't think they'll raise rates, but depending on their comments the dollar could fall, and this is making investors in the stock market nervous as well, said Hideyuki Ishiguro, a strategist at Okasan Securities in Tokyo.

The dollar was virtually unchanged against a basket of major currencies.

Japan's Nikkei share index dipped 0.2 percent as a strengthening yen put shares of exporters under pressure.

Hong Kong's Hang Seng Index fell 0.9 percent as shares of Chinese banks were hit by fears Beijing could soon clamp down on bank lending after announcing moves on Monday to try and rein in the property market.


The MSCI index of Asia Pacific stocks traded outside Japan was flat. But analysts say investors will continue to take light profits to lock in gains before the year-end after rallying 65 percent this year.

The Thomson Reuters index of regional shares was down 0.2 percent but Australia's share market nudged up 0.5 percent as energy shares were boosted by news overnight that Exxon Mobil Corp, the world's largest listed energy company, planned a $30 billion takeover of natural gas supplier XTO Energy.

A couple of big pieces of news like that is very encouraging. The Exxon move has put a bit of enthusiasm back into the market and it's supportive of our coal seam gas sector, said Ivor Ries, an analyst at E.L. & C. Baillieu Stockbroking in Australia.

The oil price stabilized at just below $70 a barrel, after falling for nine straight days. They have dropped more than $8 a barrel since December 1, the longest slide since July 2001, as rising U.S. inventory levels indicated sluggish oil demand.

Financial markets will also be scrutinizing a string of U.S. data due on Tuesday, including industrial production, producer prices and the NAHB housing index for December, for indications on the health of the world's biggest economy.

In another evidence of lingering uncertainty from the global crisis, Standard & Poor's hit Mexico with its second sovereign debt following on the heels of Greece, which was downgraded by Fitch last week for the first time in a decade on concerns about its finances.

Gold prices edged up to $1,127.90 an ounce, from $1,126.20 at the New York close, amid uncertainty about the dollar's immediate direction.

(Additional reporting by Victoria Thieberger in MELBOURNE and Elaine Lies in TOKYO; editing by Kazunori Takada)