GLOBAL MARKETS-Caution rules oil, financial markets due to Middle East worries, Fed

* Oil stabilise as Saudi says has restored supply
* But geopolitical tensions still support crude
* Investors expect Fed to cut rates by 25 basis points on
Wed
* European shares tread water, luxury under pressure
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Tom Arnold
LONDON, Sept 18 (Reuters) - Oil prices steadied on Wednesday
as Middle East events kept investors nervous, while caution
ahead of an expected U.S. interest rate cut kept wider financial
markets in tight ranges.
European stocks were subdued, with luxury stocks one of the
few sectors seeing activity. Swiss luxury goods group Richemont
CFR.S fell nearly 5%, weighing the most on the pan-European
STOXX 600 index .STOXX , while Swatch UHR.S declined 2.4%
after a bearish note by UBS.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS ticked up 0.08% while Japan's Nikkei .N225
dipped 0.18% after 10 straight days of gains and China's
blue-chip share index .CSI300 rose 0.49%.
Wall Street futures ESc1 pointed to a softer opening.
Brent crude LCOc1 futures dipped 0.26% to $64.38 a barrel,
having conceded about 65% of their gains made after the weekend
attack on Saudi Arabia's oil facilities.
Brent crude LCOc1 futures dipped 0.09% to $64.48 a barrel,
having conceded a chunk of their gains made after the weekend
attack on Saudi Arabia's oil facilities.
U.S. West Texas Intermediate (WTI) crude CLc1 lost 0.5% to
$59.04 per barrel, paring back around half of its gains after
Saturday's attack.
Saudi Energy Minister Prince Abdulaziz bin Salman on Tuesday
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 the weekend's
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 said on Tuesday the United States believes
the attacks originated in southwestern Iran, an assessment that
could heighten the rivalry between Tehran and Riyadh. Iran has
denied involvement in the strikes. 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 0.07% down at $1,501.54, while the 10-year
U.S. Treasuries yield fell to 1.799% US10YT=RR , compared with
Friday's 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 policymakers, given signs of deep disagreements among them.
"People are very cautious right now," said Christophe
Barraud, at Market Securities in Paris. "They're waiting for the
Fed meeting and potential new development in Saudi Arabia."
"For the Fed meeting, people are not betting on a big
positive surprise."
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 discussions, 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 would
conduct a repurchase agreement operation early on 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 currencies, sterling edged lower after climbing to a new
six-week high on hopes for a last-minute Brexit deal.
The pound fell 0.2% in early European trade to $1.2476
GBP=D3 , but that followed a decent gain on Tuesday to $1.2528
on the back of optimism that Prime Minister Boris Johnson was
trying to secure a Brexit deal with the European Union before
the Oct. 31 deadline.
Against the euro sterling was unchanged at 88.585 pence
EURGBP=D3 .
The yen eased slightly to 108.21 yen JPY= , near a
1-1/2-month low of 108.37 touched on Tuesday.