* 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 over German benchmarks 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 , 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 and euro 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.