GLOBAL MARKETS-Asian stocks at 3-mth low, bonds up ahead of Fed

                                
 * Shares hit by weak U.S. consumer confidence
                                
 * Oil creeps above $137
                                
 * Investors focus on Fed's inflation language
 (Updates prices, adds comments, changes byline, dateline;
previous SINGAPORE)
                                
 By Kevin Plumberg
                                
 HONG KONG, June 25 (Reuters) - Asian stocks hit a
three-month low and government bonds rose on Wednesday after a
slump in U.S. consumer confidence added to fears about export
demand and made investors cautious ahead of a Federal Reserve
policy decision.
                                
 European shares are set for a mixed start, with UK stocks
expected to open lower, according to financial bookmakers.
                                
 The U.S. dollar steadied after a drop overnight and oil
crept above $137 a barrel, with investors focused on whether
the Fed will continue to use the threat of higher interest
rates to talk down inflation even as the U.S. economy shows
signs of sluggishness.
                                
 The Fed is widely expected to keep its benchmark interest
rate unchanged at 2 percent, ending a string of seven cuts
aimed at keeping the economy out of a recession in the wake of
the credit market meltdown.
                                
 "The recent spate of weak economic data lends some risks
that the Fed could soften its language, citing concerns of
further economic weakness. This could be U.S. dollar negative,"
said economists with United Overseas Bank in a note to clients.
                                
 Tokyo's Nikkei share average <.N225> ended 0.1 percent
lower, its fifth day of losses, with exporters such as Toyota
Motor Corp <7203.T> and Sony Corp <6758.T> hit by the weak
outlook for the key U.S. market.
                                
 The MSCI index of stocks in the Asia-Pacific region
excluding Japan <.MIAPJ0000PUS> was down 0.1 percent at a
three-month low. The pan-Asia index <.MIAS00000PUS> was off 0.2
percent at its lowest since March.
                                
 "There's a real concern about global inflation at the
moment, and you've still got the lingering crisis, so it's
going to be tough for equities," said Greg Goodsell, an equity
strategist at ABN AMRO in Australia.
                                
 Indeed, India's 30-share BSE index <.BSESN> dropped by 0.5
percent after the country's central bank surprised investors
with a half-point increase in interest rates, the second rise
in June, with inflation at a 13-year high.
                                
 The Hong Kong stock market remained closed in the morning
after tropical storm Fengshen struck the territory but was set
to open for an afternoon session.
                                
 Equity markets globally have struggled as high energy
prices push up costs for both businesses and consumers. Europe
continues to be the hardest hit, with year-to-date losses of
20.4 percent on the Dow Jones STOXX 50 Europe index <.STOXX50>
compared with 10.7 percent on the U.S. Dow Jones industrial
average <.DJIA>.
                                
 The Dow Jones Asian Titans 50 index is down about 7.1
percent so far this year.
                                
 EYES ON THE FED
                                
 Markets were waiting for the U.S. central bank's statement,
eager to see if policymakers would alter the language to give
more importance to containing inflation because of record-high
oil prices.
                                
 Tuesday's data underscored the Fed's dilemma, showing a
drop in U.S. consumer confidence to a 16-year low and a further
decline in home prices, both heralding a drop in U.S. consumer
spending. [ID:nN24338474]
                                
 A sluggish U.S. economy and a weak dollar are bad news for
Asia, which relies heavily on exports as an engine of economic
growth and a source of corporate profits.
                                
 Oil prices <CLc1> rose 13 cents to $137.13 a barrel,
underpinned by supply concerns, Middle East tensions and
expectations of a drop in U.S. crude stocks. Crude rose to an
all-time high of $139.89 last week.
                                
 The weak U.S. growth outlook and stock market declines
lifted safe-haven government bonds, with the yield on the
Japanese benchmark 10-year bond <JP10YTN=JBTC> dipping 2 basis
points and touching a one-month low.
                                
 "Tuesday's release showed that the deterioration in U.S.
consumer indicators took a turn for the worse," said Naomi
Hasegawa, a senior fixed-income strategist at Mitsubishi UFJ
Securities. "It is leading to expectations that the Fed may not
hike at all," she said.
                                
 The dollar was little changed after it slipped 0.25 percent
against a basket of major currencies on Tuesday. It traded at
107.80 yen <JPY=> and the euro was little changed at around
$1.5575 <EUR=>.
 (Editing by Alan Raybould)