GLOBAL MARKETS-Oil eyes $120 record, shares up cautiously

                                
 (Adds European open, updates with stocks slipping, detail)
                                
 By Tom Miles
                                
 HONG KONG, April 28 (Reuters) - Oil prices hit a new record
close to $120 a barrel on Monday as supply problems outweighed
the burden of a firm dollar, while stock and bond investors
trimmed their positions ahead of a U.S. interest rate decision.
                                
 Share markets in Asia were flat to slightly higher, buoyed
by strength in banks, while European shares rose in early
trade, with Britain's FTSE 100 <.FTSE>, the German DAX
<.GDAXI>, and the French CAC 40 <.FCHI> up between 0.2-0.3
percent.
                                
 Investors were focused on the Federal Reserve's interest
rate setting meeting, which starts on Tuesday. Although
financial markets expect a small reduction, the Fed could
signal that its rate-cutting cycle is over.
                                
 "Investors want to see the outcome of the meeting as the
market had already factored in a possibility that the Fed may
stop cutting interest rates, prompting investors to return to
financials," said Kazuhiro Takahashi, general manager of the
equity marketing department at Daiwa Securities SMBC.
                                
 Many stockmarket investors took oil's latest record with a
pinch of salt, preferring to ponder the impact of Wednesday's
U.S. interest rate decision and to trim their portfolios after
a rout in the bond market and a rush back into bank stocks.
                                
 Japan's Nikkei stock average rose 0.2 percent to 13,894.37,
its highest close since Feb.28, after an early surge took it
above 14,000. Among the biggest gainers were banks such as
Mitsubishi UFJ Financial Group <8306.T>, which rocketed 10
percent. MSCI's index of stocks across the rest of Asia
<.MIAPJ0000PUS> was 0.4 percent higher.
                                
 The Asia ex-Japan index has rallied almost 18 percent since
hitting a seven-month low in mid-March, but is still down
around 7 percent so far this year.
                                
 Seoul's KOSPI <.KS11> ended down 0.1 percent, Hong Kong's
Hang Seng index <.HSI> was up 0.4 percent and Australia's
S&P/ASX 200 <.AXJO> closed 0.3 percent higher.
                                
 OIL SLICK
                                
 Oil prices have soared in the last year because of the weak
dollar, unrelenting demand from booming emerging economies,
speculative investment and supply problems.
                                
 The latter helped push U.S. crude oil futures <CLc1> to
$119.93 a barrel in early Asian trade on Monday, 3 cents beyond
a record struck last Tuesday, as a Scottish strike and a
Nigerian attack conspired to restrict supplies.
                                
 The strike over pensions at the Grangemouth refinery in
Scotland forced the closure on Sunday of the 700,000 barrel per
day Forties pipeline, which carries nearly half of Britain's
oil, operator BP Plc <BP.L> said. [ID:nL26297731]
                                
 A step up in tensions between U.S. and the world's
fourth-largest crude exporter Iran also contributed to oil's
gain. The U.S. Navy said a cargo ship hired by the U.S.
military fired warning shots at boats suspected to be Iranian
[ID:nN25305335] although Iran denied there had been any
confrontation between its forces and a U.S. ship.
[ID:nDAH725267]
                                
 By 0629 GMT U.S. crude was trading at $119.55. A Reuters
poll of 33 analysts [ID:nL25701610] shows a consensus forecast
for U.S. crude this year of $96.68 a barrel, compared to an
average last year of $72.30.
                                
 FED IN FOCUS
                                
 Activity in Tokyo remained slow as many local investors
stayed away from the market before Japan's Golden Week string
of national holidays that starts on Tuesday.
                                
 Those that remained were focused on the Fed, which could
help the dollar - and by extension Asian exporters - if it
signals in its post-meeting statement on Wednesday that rate
cuts will be put on hold in the face of mounting global energy
and food inflation pressure.
                                
 While most analysts expect a 25 basis point rate cut, U.S.
short-term interest rate futures show a small chance the Fed
will keep rates on hold when it announces its rate decision on
Wednesday at 2:15 p.m. EDT (1815 GMT). <FEDWATCH>
                                
 The prospect of U.S. interest rates bottoming out has
helped fuel the idea that the stock market might have weathered
the worst of the credit crunch and kept the dollar firm at
around 104.6 yen <JPY=> on Monday.
                                
 The change in outlook caused a rout in Japanese government
bonds on Friday, which continued on Monday before
bargain-hunters moved in, pulling the 10-year bond yield
<JP10YTN=JBTC> back from a six-month peak of 1.675 percent.
 (Additional reporting by Fayen Wong in PERTH, Geraldine Chua
in SYDNEY, Aiko Hayashi and Elaine Lees in TOKYO; Editing by
Louise Heavens)