(Adds dateline, byline, comment in paragraphs 3, 5; updates prices at 10:39 ET)
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Fed rate decision expected at 1800 GMT
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Sterling weakens after UK inflation data
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Global equities rise, Wall Street edges up
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Oil prices slip, Treasury yields dip
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Graphic: World FX rates http://tmsnrt.rs/2egbfVh
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Graphic: Global asset performance http://tmsnrt.rs/2yaDPgn
By Herbert Lash and Dhara Ranasinghe
NEW YORK/LONDON, Sept 20 (Reuters) - A gauge of global equities rose and Treasury yields eased on Wednesday from multi-year highs hit the day before as the market awaits a likely pause in the Federal Reserve's interest rate hiking campaign to tame inflation that's still too high.
The U.S. central bank is expected to maintain its overnight lending rate in the 5.25%-5.50% range at the end of a two-day policy meeting at 2 p.m. ET (1800 GMT), though a recent spike in oil prices has raised concerns another hike may lie ahead.
Members of the policy-setting Federal Open Market Committee "are very happy with the situation they're in, which is they've got inflation trending down without a cost to growth or employment," said Brad Conger, deputy chief investment officer at Hirtle Callaghan & Co in Conshohocken, Pennsylvania.
But the surge in oil prices to above $90 a barrel represents a wild card, even though volatile food and energy prices are excluded from core inflation measures that drive Fed decisions.
"They can ignore a very short term spike," Conger said. "But if we keep going higher, then their radar is going to be triggered and they're going to be much more willing to put in another preventative hike."
The yield on the benchmark 10-year Treasury note fell 3.4 basis points to 4.333% after hitting 4.371% on Tuesday, the highest since late 2007. The two-year's yield, which reflects interest rate expectations, fell 4.2 basis points to 5.067%, above the 5% mark that futures show will remain through July next year.
The Fed leads a week jammed with key central bank meetings, with policy announcements in Sweden, Switzerland, Norway, Britain and Japan all due later this week.
World stock markets were edging higher ahead of the Fed rate decision, with MSCI's U.S.-centric gauge of stocks across the globe gaining 0.28%.
In Europe, the pan-regional STOXX 600 index rose 1.03% and the three main Wall Street indices edged higher. The Dow Jones Industrial Average rose 0.44%, the S&P 500 gained 0.23% and the Nasdaq Composite added 0.03%.
In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5% with Hong Kong stocks dragging as China left lending rates on hold. Japan's Nikkei fell 0.7%.
Sterling came under pressure after data showed Britain's high inflation rate fell unexpectedly in August, prompting speculation that the Bank of England could pause its historic run of interest rate hikes as soon as Thursday.
The dollar index fell 0.295%, with the euro up 0.4% to $1.072.
Japan's yen continued to face pressure, prompting a riposte from Japan's top financial diplomat.
Masato Kanda told reporters that Japanese authorities were always in close communication with U.S. counterparts and that he wouldn't rule out any options if "excessive moves persist."
The yen is down 11% on the dollar this year as expectations firm for U.S. rates to stay high and Japanese rates to stay low, earlier hitting a 10-month trough of 148.17 per dollar.
Benchmark 10-year Japanese government bonds are at 0.72%, but have been creeping toward the Bank of Japan's adjusted tolerance for yields 1% either side of zero.
Commodity exporters' currencies were firm, with the New Zealand dollar holding modest recent gains at $0.5976 after strong dairy price gains at auction.
The Aussie held at $0.6498 and analysts said markets might be more sensitive to a dovish surprise from U.S. policymakers.
"We think that the market may already be semi-braced for a hawkish pause," said DBS strategist Eugene Low in Singapore.
"Short of the Fed delivering beyond what is reasonably expected - that is, hiking rates or removing two cuts per year - we think upside to two-year and three-year dollar rates may be limited."
Rising yields have kept a lid on gold prices, with spot gold last trading at $1,930 an ounce.
(Reporting by Dhara Ranasinghe and Samuel Indyk in London and Tom Westbrook in Singapore; Editing by Toby Chopra, Chizu Nomiyama and Sharon Singleton)
