CORRECTED-GLOBAL MARKETS-Oil steps back on Saudi supply reassurance, focus shifts to Fed

(Corrects WTI's high to $63.38, not $68.38, in paragraph 5;
also to rate cuts, not hikes, in paragraph 13)
* Oil steps back as Saudi says has restored supply
* Geopolitical tensions still support oil
* Investors expect Fed to cut rates 0.25% point on Wed
* U.S. repo squeeze makes Fed QE more likely - Gundlach
* Asian stock markets: https://tmsnrt.rs/2zpUAr4

By Hideyuki Sano
TOKYO, Sept 18 (Reuters) - Oil prices cooled on Wednesday as
Saudi Arabia said full oil production would be restored by
month's end while caution ahead of an expected U.S. interest
rate cut kept wider financial markets in tight ranges.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS was up 0.13 % while Japan's Nikkei .N225 was
flat.
Wall Street shares ticked up a tad on Tuesday with the S&P
500 .SPX gaining 0.26%.
Brent crude LCOc1 futures dipped 0.1% to $64.50 a barrel,
having conceded more than 60% of their gains made after the
weekend attack on Saudi oil facilities.
U.S. West Texas Intermediate (WTI) crude CLc1 lost 0.5% to
$59.06 per barrel, compared to four-month peak of $63.38 marked
on Monday.
Saudi Energy Minister Prince Abdulaziz bin on Tuesday Salman
sought to reassure markets, saying the kingdom would restore its
lost oil production by month-end having recovered supplies to
customers to the levels they were prior to weekend attacks.
"I would think a spike in oil prices will likely prove to be
short-term given that the global economy isn't doing too well,"
said Akira Takei, bond fund manager at Asset Management One.
Still, heightened geopolitical tensions underpinned oil as
well as some safe-haven assets such as U.S. bonds.
A U.S. official told Reuters on Tuesday the United States
believes the attacks originated in southwestern Iran, an
assessment that could further increase the rivalry between
Tehran and Riyadh.
Adding to uncertainties in the Middle East were exit polls
from Israel's election, which showed the race too close to call
suggesting Prime Minister Benjamin Netanyahu's fight for
political survival could drag on. Gold XAU= was mostly flat at $1,502.10, while the 10-year
U.S. Treasuries yield fell to 1.810% US10YT=RR , compared with
Friday's high of 1 1/2-month high of 1.908% ahead of the Fed's
policy announcement on Wednesday.
While a 25-basis point rate cut is seen as near-certain,
investors look to the statement and economic projections from
Fed policy makers, given signs of deep disagreements among them.
"Markets are currently almost pricing in three more rate
cuts by the end of next year, including one by the end of this
year, but the chances are that the Fed's stance will be more
hawkish than markets and we could see rise in bond yields in the
near term," said Masahiko Loo, portfolio manager at Alliance
Bernstein.
The ongoing U.S.-China trade war has raised policymakers'
concerns about slowing factory output although resilient
domestic consumption has given hawks some reasons to worry about
cutting rates too hastily.
Possibly further complicating their discussion, short-term
U.S. interest rates shot up this week, with overnight repo rates
rising to 7%, due largely to seasonal factors such as huge
payments for taxes and bond supply.
That prompted the New York Fed to conduct its first repo
operation in more than a decade to inject funds to stressed
money markets. The New York Federal Reserve said late Tuesday it will
conduct a repurchase agreement operation early Wednesday "in
order to help maintain the federal funds rate within the target
range of" 2.00% to 2.25%. Jeffrey Gundlach, chief executive of DoubleLine Capital,
said on Tuesday that the repo market squeeze makes it more
likely that the Federal Reserve will resume expansion of its
balance sheet "pretty soon." Also in focus is the Bank of Japan's policy meeting due
Thursday. While the latest Reuters poll suggests the BOJ will
keep its policy on hold, 28 of 41 economists expect it will ease
its policy this year and 13 believe it may surprise by taking
action at the Thursday meeting. In the currency market, the euro stood flat at $1.1066
EUR= after 0.6% gain the previous day on better-than-expected
readings in Germany's ZEW survey on investor confidence.
Sterling traded at $1.2489 GBP=D4 , down 0.05% so far on
the day, having hit two-month high of $1.2528 as investors
reversed their bets against the currency on fear of a no-deal
Brexit at the end of next month.
The yen eased slightly to 108.26 yen JPY= , near 1
1/2-month low of 108.37 touched on Tuesday.

(Editing by Sam Holmes)