GLOBAL MARKETS-Dollar dips, shares touch two-week low before Yellen

* MSCI All-Country World index hits lowest since Aug. 9

* Dollar index edges down

* Yellen may seek middle ground in rates debate -analysts

By Atul Prakash

LONDON, Aug 26 (Reuters) - The dollar edged down and global shares slipped to a two-week low on Friday as investors turned cautious before a keynote speech by Federal Reserve Chair Janet Yellen that could map out a clearer path for U.S (Other OTC: UBGXF - news) . interest rates.

The MSCI All-Country World index was down 0.1 percent by 0817 GMT, after slipping to its lowest level since Aug. 9, while the pan-European STOXX 600 fell 0.2 percent.

Investors were wary of Yellen hinting at a near-term interest rate hike, which could divert some of the liquidity that has underpinned riskier assets worldwide, though others predicted she would strike a more equivocal note.

The dollar index, which tracks the currency against six major peers, slipped 0.14 percent to 94.721, while euro zone government bond yields crept up.

Recent hawkish comments from other Fed officials have raised expectations of a U.S. rate hike this year, though markets are not fully pricing one in till 2017.

"Markets are a bit worried about the upcoming comments from Yellen, which is understandable given how much of the market strength is due to central bank action," said Philippe Gijsels, head of research at BNP Paribas Fortis in Brussels.

"The fact that some of her disciples have indicated that it may be time to raise rates again has not done much in terms of calming sentiment. She (Munich: SOQ.MU - news) will probably try to strike a balance between an improving U.S. economy and risks abroad."

Chris Scicluna, head of economic research at Daiwa Capital Markets, took a similar line.

"Yellen won't be able to ignore the current debate but she can't make a commitment either because there's a range of views on the FOMC," he said.

On Thursday San Francisco Fed President John Williams and Kansas City Fed President Esther George defended the need to raise rates, albeit gradually, to keep the U.S. economy from overheating.

Earlier in Asia, Japan's Nikkei index fell 1.2 percent after U.S. stocks closed modestly lower on Thursday. However, MSCI (Frankfurt: 3HM.F - news) 's broadest index of Asia Pacific shares outside Japan were flat.

On the commodities front, oil prices fell after the Saudi energy minister tempered expectations of strong market intervention by producers during talks next month, and as analysts pointed to a supply overhang.

Zinc prices touched their highest level in 15 months as fresh shutdowns in China's steel sector added to mine supply concerns. As China steel mills shutter, steel prices lift, meaning the remaining mills can pay more for ingredients such as zinc.

Wariness ahead of Yellen's speech also gave spot gold a leg-up. It rose 0.2 percent, narrowing this week's losses.

For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Additional reporting by Nichola Saminather in Singapore, Shinichi Saoshiro in Tokyo and Dhara Ranasinghe in London; editing by John Stonestreet)