* Stocks rise in Europe and Asia befire expected Fed hike
* Oil resumes fall, narrowly avoids 11-year low
* Dollar drops vs euro, yen
* Fed hike concerns weigh on high-yield debt
By Nigel Stephenson
LONDON, Dec 15 (Reuters) - Stocks rose in Europe and Asia on
Tuesday, though volatile oil prices kept investors cautious
before a widely anticipated increase in U.S. interest rates
later in the week.
Oil prices resumed their fall and the euro rose against the
dollar. Concerns in the high-risk U.S. corporate debt market
about the potential impact of a rate hike weighed on low-rated
euro zone government bonds.
European shares opened higher after hitting 2-1/2-month lows
on Monday when oil prices fell to their weakest since 2008. The
pan-European FTSEurofirst 300 index .FTEU3 rose 1.2 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS was up about 0.1 percent. Japan's Nikkei stock
index .N225 ended down 1.7 percent at a 7-1/2-week low and
Chinese stocks .SSEC .CSI300 lost 0.3-0.5 percent.
On Monday, U.S. stocks ended higher as oil pulled off its
lows. However, Brent crude LCOc1 dropped 25 cents a barrel to
$37.67 on Tuesday after falling the previous day to as low as
$36.33, its weakest since December 2008. A fall below $36.20
woukd take it back to levels last seen in mid-2004.
Prices have been falling due to a global glut of oil and, in
the northern hemisphere, a mild start to winter.
The first U.S. rate rise since 2006 is largely priced in,
with the Fed expected to increase its targeted rate range to
0.25-0.5 percent from the current zero to 0.25 percent.
"Even if the Fed sends a hawkish message by suggesting it
aims to hike actively next year, they are data-dependent," said
Shin Kadota, chief FX strategist at Barclays (L:BARC) in Tokyo.
"Indicators will have to show the U.S. economy can withstand
rate hikes before the dollar can launch into its next phase of
appreciation."
However, concerns that a rate rise could hurt
highly-leveraged companies have seen a handful of funds in the
high-yield debt market fail and propelled measures of risk
sharply higher in recent days.
They have also pushed the yield premium of short-term
Italian and Spanish bonds IT2YT=TWEB ES2YT=TWEB over German
benchmarks DE2YT=TWEB to their highest since July.
"At times like this, when liquidity is very thin due to the
pending FOMC decision, the correlation between asset classes has
a tendency to rise significantly," said Peter Chatwell, head of
European rates strategy at Mizuho.
"Thus the weakness in credit markets, which itself may also
be a function of the FOMC, is apparent in euro sovereign
spreads."
The dollar index .DXY , which measures the U.S. currency
against a basket of its peers, fell 0.2 percent. The euro EUR=
rose 0.4 percent to $1.1031 while the yen JPY= gained 0.2
percent to 120.83 per dollar.
"(The dollar) could face additional pressure if U.S.
Treasuries are bought back on relief that the Fed's rate hike
cycle will be quite a slow one," he said.
YUAN
China's yuan CNY= , however, weakened against the dollar
after the Chinese central bank set the mid-point of the
permitted trading band at a 4 1/2-year low for a second day.
The Swedish crown rose versus the dollar SEK= and euro
EURSEK= after the Riksbank, Sweden's central bank, kept
interest rates unchanged as expected but said it was ready to
act if a slight rise in inflation stalled.
Gold XAU= fell in anticipation of higher U.S. interest
rates. It last stood at $1,062.15 an ounce.