Asian shares edge higher as investors await Fed

TOKYO (Reuters) - Asian shares cautiously edged higher on Tuesday as investors awaited a U.S. Federal Reserve meeting beginning later in the session, as expectations of a more hawkish Fed stance on monetary policy underpinned the dollar.

MSCI's broadest index of Asia-Pacific shares outside Japan was slightly higher in early trade.

Japan's Nikkei stock average shed 0.4 percent, catching up after Tokyo markets were closed for a local holiday on Monday.

Wall Street had a mixed session on Monday after weekend data showed China's factory output in August grew at its slowest pace in nearly six years, raising fears the world's second-largest economy was losing momentum.

The Fed's Open Market Committee will begin its regular two-day policy meeting later on Tuesday, and investors will be scanning the outcome for clues on the timing of the first U.S. rate hike in more than eight years.

U.S. central bank policymakers will also release fresh economic and interest-rate projections, extending their forecast horizon through 2017.

They have said they do not expect to raise rates until 2015, but recently strong U.S. economic data has led Fed officials to acknowledge they may need to act sooner than they thought just a few months ago.

"At Wednesday's FOMC meeting, changes to Fed forecasts and wording that reflects expectations that rates could go higher sooner than expected should provide support" to the U.S. dollar, strategists at Barclays said. "We also look for a modest steepening in the median policy path and more clarity on exit principles."

The dollar index, which tracks the greenback against a basket of six major rivals, was steady on the day at 84.241 , not far from its 14-month peak of 84.519 scaled a week ago.

Keeping pressure on the euro, the Organisation for Economic Cooperation and Development projected lower growth for major economies on Monday and urged much more aggressive stimulus from the European Central Bank to ward off the risk of deflation.

The euro was treading water at $1.2939, while the dollar edged down slightly against its Japanese rival to 107.15 yen but was still close to a six-year high of 107.39 yen touched on Friday.

The yield on the benchmark 10-year U.s. Treasury note stood at 2.590 percent in Asia, not far from Monday's U.S. close of 2.591 percent. It hit a two-month high of 2.651 percent on Monday, before paring its rise on news of a drop in last month's U.S. manufacturing output.

U.S. crude edged down about 0.1 percent to $92.79 a barrel, pressured by the weekend data from China that cast doubt on the strength of global demand. On Monday, the expiring Brent contract for October dropped to its weakest price since July 2012, while the new front-month contract added 0.2 percent in Asian trade to $98.07.

Spot gold was steady on the day at $1,232.36 an ounce, supported by the Chinese data but undermined by expectations that the Fed will start hinting at interest rate hikes. On Monday, it fell to its lowest level since January.

(Editing by Eric Meijer)