GLOBAL MARKETS-Fed uncertainty, China sell-off rattle stocks

                                
 * Stocks fall with Fed, BoE in focus
                                
 * Chinese stocks tumble 4.7 pct, Europe down 0.7 pct
                                
 * Yen rises, euro zone government bond yields fall 
                                
 
                                
 By Jeremy Gaunt, European Investment Correspondent
                                
 LONDON, Aug 12 (Reuters) - Uncertainty about the Federal
Reserve's view on the U.S. economy and another sharp fall in
Chinese stocks pushed equities lower across the world on
Wednesday and drove lower-yielding currencies higher.
                                
 The Fed started its two-day meeting on Tuesday, with
expectations that it will leave benchmark interest rates near
zero and let a $300 billion quantitative easing programme to buy
Treasury securities expire on schedule in September as economic
gloom lifts.
                                
 But after a report showing U.S. firms continue to cut
inventories as they lack confidence in the economy, analysts
expect the Fed will try to dampen speculation about higher
interest rates while still supporting hopes that the makings of
a recovery are at hand.
                                
 Its statement is due at about 1815 GMT.
                                
 The Bank of England's inflation forecasts, due at 0930 GMT,
were also in focus after its surprise decision last week to
extend its quantitative easing programme. [ID:nLA266268]
                                
 World stocks as measured by MSCI <.MIWD00000PUS> were down
0.6 percent with emerging market equities <.MSCIEF> dropping 1.7
percent.
                                
 "World share markets have been moving in tandem for a while
and there's growing concern that many have been overbought,
which may lead to a bit of adjustment after all the gains," said
Masayoshi Okamoto, head of dealing at Jujiya Securities in
Tokyo.
                                
 One area of concern was China, where Shanghai's bourse
<.SSEC> dropped 4.7 percent. A similar tumble occurred at the
end of July and while Chinese stocks are notoriously volatile,
investors are nonetheless jittery about the market.
                                
 European shares fell in early trade on Wednesday, extending
their losing run to three days. The pan-European FTSEurofirst
300 <.FTEU3> index of top shares was down 0.7 percent.
                                
 Earlier, Japan's Nikkei <.N225> closed down 1.4 percent.
                                
 
                                
 YEN UP
                                
 Falling Chinese stocks dented demand for riskier currencies
and prompted investors to cut long positions in higher-yielding
currencies such as the Australian dollar.
                                
 Uncertainty about the overall market reaction to the Fed's
policy decision was also making investors cautious.
                                
 "The currency reaction after the Fed is hard to predict. But
one thing that is certain is that long positions that had been
stretched are now looking vulnerable to liquidation," said
Shuichi Kanehira, head of FX spot trading at Mizuho Corporate
Bank.
                                
 The dollar fell 0.7 percent to 95.21 yen <JPY=>, but the
U.S. currency was otherwise higher. The euro lost a third of a
percent to $1.4100 <EUR=>.
                                
 Euro zone government bonds were higher as equities came
under pressure. Two-year euro zone government bond yields
<EU2YT=RR> were 5 basis points lower at 1.426 percent, with
10-year yields <EU10YT=RR> off 4 basis points at 3.432 percent.
  
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 (Editing by Mike Peacock)