(Adds close of European markets, analyst comments)
* Wall St slips from record levels on weak oil prices
* Oil prices slide on oversupply, economic headwinds
* Dollar steady before U.S. Fed, Bank of Japan meetings
By Herbert Lash
NEW YORK, July 25 (Reuters) - Global equity markets edged lower on Monday as a 2 percent drop in crude prices weighed on investor sentiment and traders awaited signals of a potential interest rate increase this year from this week's meeting of U.S. Federal Reserve policymakers.
Oil prices fell to two-and-a-half month lows amid worries that a global glut of crude and refined products would weigh on markets for some time. in Europe closed slightly higher but a gauge of equity markets worldwide was lower. Longer-dated Treasury yields fell and the dollar was slightly lower against the euro and yen as investors looked to the conclusion of a two-day Fed policy meeting on Wednesday and a Bank of Japan meeting on Friday.
"With stocks starting to fall, we are looking at some upward momentum on longer-dated bond prices," said Justin Hoogendoorn, head of fixed income strategy at Piper Jaffray in Chicago.
Traders have priced in a 26 percent chance of a rate hike in September and a 56 percent chance in December, according to CME Group's FedWatch tool. all-country world stock index .MIWD00000PUS fell 0.24 percent, but the pan-European FTSEurofirst 300 .FTEU3 of leading regional stocks closed up 0.06 percent to 1,344.95.
The Dow Jones industrial average .DJI fell 103.37 points, or 0.56 percent, to 18,467.48. The S&P 500 .SPX slid 11.36 points, or 0.52 percent, to 2,163.67 and the Nasdaq Composite .IXIC lost 12.36 points, or 0.24 percent, to 5,087.80.
Phil Orlando, chief equity strategist at Federated Investors in New York, said that from a valuation perspective, U.S. stocks were rich, with the benchmark S&P 500 trading at 22 times trailing earnings. The market is set for a correction, he said.
"We've had a 9 percent post-Brexit bounce, the market is getting pretty exhausted, you got a lot of uncertainty on the immediate horizon," Orlando said, citing this week's Fed meeting, the British vote in June to exit the European Union and the upcoming U.S. election.
Crude prices were trading at prices last seen in early May. Traders said oversupply and growing economic headwinds were weighing on oil.
Brent crude futures LCOc1 were down 2.21 percent at $44.68 a barrel, while U.S. crude CLc1 was down 2.49 percent at $43.09 a barrel.
The dollar has gained against major currencies in recent weeks as better-than-expected economic data revived expectations that the Fed will raise interest rates again this year.
The dollar edged lower against the yen at 105.87 JPY= , and slid slightly against the euro EUR= to $1.0989. 10-year Treasury notes US10YT=RR were little changed in price to yield 1.5680 percent. zone bond yields edged toward post-Brexit lows after the world's biggest economies reiterated their commitment to using all policy tools to lift growth. a weekend G20 meeting dominated by last month's British vote to leave the European Union and by fears of protectionism, policymakers said they would use "monetary, fiscal and structural" tools to collectively support the global economy. zone yields were broadly lower, with German 10-year yields down 2.4 basis points at minus 0.10 percent DE10YT=TWEB , within sight of the record low of minus 0.20 percent hit in early July.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Global assets in 2016
http://reut.rs/1WAiOSC Oil prices
http://link.reuters.com/beb23v EM stocks performance in 2016
http://link.reuters.com/weh36s Currencies in 2016
http://link.reuters.com/tak27s Commodities performance
http://link.reuters.com/reb25t
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Editing by Nick Zieminski and Bernadette Baum)