* Investors watching for signs of faster policy normalisation
* Fed statement due at 1800 GMT
* European shares, U.S. stock futures weaken
* Graphic: Global asset performance http://tmsnrt.rs/2yaDPgn
* Graphic: World FX rates http://tmsnrt.rs/2egbfVh (Updates throughout, adds fresh comment, charts)
By Dhara Ranasinghe
LONDON, March 17 (Reuters) - U.S. 10-year Treasury yields rose to their highest levels since early 2020 on Wednesday as investors waited to see whether the Federal Reserve would signal a faster path toward policy normalisation than previously expected.
World stocks meanwhile headed lower and Russia's rouble fell sharply after comments from U.S. President Joe Biden that Russian President Vladimir Putin "would pay a price" for election interference.
But market volatility is being contained by the upcoming Fed policy statement.
The central bank is expected to forecast that the U.S. economy will grow at the fastest rate in decades in 2021 thanks to a $1.9 trillion fiscal boost and COVID-19 vaccine rollout. But investors who expect rosier projections to translate to any change in monetary policy will probably be disappointed. is one of the most important Fed meetings we've had for some time and the impact will be felt across asset classes," said Seema Shah, chief strategist at Principal Global Investors.
"Markets are hoping for reassurance from the Fed that rising bond yields are not something to worry about, and that takes a bit of steam out of the bond market."
Before the Fed statement at 1800 GMT, the 10-year U.S. Treasury yield rose to a fresh high at 1.67% US10YT=RR , up more than 3 basis points on the day.
BIDEN VS PUTIN
Comments from Biden that Russia's Putin will face consequences for directing efforts to swing the 2020 U.S. presidential election to Donald Trump caused some unease in markets. stock market futures, which had been steady for much of the London session, slipped, pointing to a weak open for Wall Street ESc1 1YMc1 . That in turn pressured European shares .STOXX .FTSE .
Russia's rouble extended losses, falling more than 1% against the U.S. dollar, while bonds also faced selling pressure.
"There will be more sanctions coming, that is clear. The question is, how severe," said North Asset Management fund manager Peter Kisler.
MSCI's world equity index .MIWD00000PUS was down 0.2%, but still within sight of last month's record highs. In Asia, an index of regional equities excluding Japan .MIAPJ0000PUS pulled back 0.4%. Japan's Nikkei 225 .N225 closed flat. was some good news for AstraZeneca (NASDAQ:AZN) AZN.L as Australia's pharmaceutical regulator said rollout of the company's COVID-19 shot would continue, even though many European nations have paused vaccinations to investigate reported side-effects.
BOND WATCHING
The rise in benchmark 10-year Treasury yields US10YT=RR is the focal point for markets, coming ahead of the Fed statement.
They have risen 76 basis points so far this year versus a 26 bps increase in German peers DE10YT=RR and a 7 bps rise in Japanese borrowing costs JP10YTN=JBTC .
Inflation expectations have also ticked higher, with the break-even rate on 10-year Treasury Inflation-Protected Securities (TIPS) US10YTIP=RR rising above 2.3% on Tuesday for the first time since July 2014. The break-even rate for 30-year TIPS US30YTIP=RR hit 2.24%, the highest since September 2014.
"The question is whether (Fed chief) Jerome Powell sees the steepening of the U.S. yield curve as appropriate," said Chris Scicluna, head of economic research at Daiwa Capital Markets.
"The forecasts are likely to be revised up so it is hard to argue that the yield curve steepening is not appropriate. We have seen an increase in breakeven inflation in TIPS, too."
In currencies, an index tracking the dollar against six major peers =USD was firmer at around 91.95. The euro was weaker on the day at $1.1897 EUR=EBS . The dollar was up about 0.16% at 109.17 yen JPY=EBS .
Elsewhere, oil prices slipped as concern about weaker demand in Europe outweighed an industry report that showed U.S. crude stockpiles unexpectedly fell last week. Brent crude futures LCOc1 fell 1% to $67.70 a barrel and U.S. crude futures CLc1 slipped 0.9% to $64.23.
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http://tmsnrt.rs/2ihRugV Global asset performance
http://tmsnrt.rs/2yaDPgn Tolerated Inflation Hump?
https://tmsnrt.rs/3qV72Xj A steeper U.S. Treasury yield curve
https://tmsnrt.rs/3tsINRP
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