Stocks fall alongside oil; euro up for second straight day

NEW YORK (Reuters) - Stocks mostly fell on Tuesday and crude oil prices dropped further as investors focused on a U.S. Federal Reserve meeting where the central bank may edge closer to its first interest-rate increase in nine years.

The euro rose against the dollar for a second straight session, after hitting a recent 12-year low, while the dollar dipped against a basket of major currencies <.DXY>.

European equity markets retreated from gains built on the euro's decline, which cheapens the price of exports from the euro zone. London's market <.FTSE> was an exception, and Asian markets ended higher.

U.S. crude oil hit a six-year low of $42.63 a barrel before recovering to $43.03, still down 1.9 percent. It has fallen in eight of the last nine sessions due to oversupply and the possibility that a nuclear agreement with Iran could add to the glut.

Brent crude fell 2.26 percent to $52.72.

Fed policymakers kicked off a two-day meeting on Tuesday, and many analysts expect them to remove the reference to being "patient" on rate rises from their policy statement on Wednesday. That would put the Fed a step closer to the first rate hike since 2006.

Economists polled by Reuters are almost evenly split on whether a rate increase will come in June or later in the year. Recent U.S. data, including Tuesday's on February housing starts, has fueled talk that the Fed will remain on hold as long as possible.

"A lot of today's decline is speculation on how the Fed will respond, along with the sense that (U.S.) growth is weak," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, Ohio.

The Dow Jones industrial average <.DJI> was down 178.60 points, or 0.99 percent, at 17,798.82. The Standard & Poor's 500 Index <.SPX> was down 14.53 points, or 0.70 percent, at 2,066.66. The Nasdaq Composite Index <.IXIC> was down 18.10 points, or 0.37 percent, at 4,911.41.

The MSCI International ACWI Price Index <.MIWD00000PUS> slipped 0.3 percent while European shares <.FTEU3> lost 0.9 percent, pulling back from a 7-1/2-year high. [ID:nL6N0WJ2EJ]

The benchmark 10-year U.S. Treasury note rose 10/32 in price, pushing the yield up to 2.0629 percent.

After weakening to a 12-year low of $1.0457 at the start of the week, the euro had secured a firm foothold back above $1.06. It rose 0.7 percent to $1.0638 on Tuesday.

The U.S. dollar index, which measures the greenback against a basket of major currencies, slipped 0.05 percent, extending its biggest drop in more than a month on Monday.

Gold prices rose 0.1 percent while silver was up 0.3 percent. Copper lost 1.1 percent in its second straight daily decline.

(Reporting by Ryan Vlastelica; Editing by Dan Grebler)

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