By Jamie McGeever
LONDON (Reuters) - World stocks fell on Wednesday as investors braced for the possibility that a major central bank could raise interest rates this year after Bank of England minutes showed two of the bank's nine rate-setters voted for a hike earlier this month.
Sterling and UK bond yields also rose after the unexpected shift closer to higher British rates, while record-low euro zone money market rates pushed the euro to its weakest against the dollar in a year.
As central bank policy signals and relative interest rates eclipsed geopolitical developments, investors were also braced for the release later Wednesday of minutes from the last Federal Reserve policy meeting.
The Fed minutes come ahead of Fed Chair Janet Yellen's keenly-anticipated address to the annual gathering of policymakers in Jackson Hole, Wyoming, on Friday.
"A split vote shows that the first rate hike is approaching," said Philippe Gudin, an economist at Barclays, referring to the BoE.
"We expect the support for a rate increase to grow in the coming months and we foresee the first hike taking place before year end," he said.
At midsession, Britain's FTSE <.FTSE> was down half of one percent at 6,748 points, Germany's DAX <.GDAXI> was off a similar amount at 9,293 points and France's CAC <.FCHI> was down a third of one percent at 4,238 points.
Two of the biggest stock market movers in Europe were brewers. Shares in Denmark's Carlsberg
Stocks had been underpinned this week as attention shifted away from the Ukraine-Russia conflict, and by strong U.S. housing data and lower-than-expected UK inflation figures.
The MSCI index of world stocks <.MIWD00000PUS> slipped 0.1 percent to 428 points, and U.S. futures pointed to losses of around 0.1 percent at the open.
BOE, ECB DIVERGENCE
Sterling rose 0.2 percent to $1.6650
Elsewhere in currencies, the dollar surged to a near one-year high against a basket of major counterparts. It hit 103.26 yen
The euro slumped below $1.33
"This is a combination of expectations of very low rates for a very long period of time, but also a reflection that the market has raised the odds of the European Central Bank being drawn into taking more serious action," said Elwin de Groot, a senior market economist at Rabobank in Utrecht, The Netherlands.
Overnight interbank lending rates in the euro zone are coming ever closer to zero. Eonia rates are now just 0.005 percent
Key U.S. and euro zone government bond yields were little changed. The 10-year German government bond yield hovered just below 1 percent
The 10-year Treasury yield had risen for the last three days, rebounding from a 14-month low of 2.30 percent last week.
In commodities, gold was stuck below $1,300 an ounce XAU= after shedding 1.3 percent in the last three sessions.
Brent crude futures recovered from near 14-month lows, ticking up a third of one percent to $101.95 a barrel
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(Reporting by Jamie McGeever, additional reporting by Marius Zaharia; Editing by Toby Chopra)
