GLOBAL MARKETS-Stocks fall on Fed view; euro climbs for 7th day

* U.S. budget deal boosts Fed taper expectations

* World equity index down 0.88 percent

* Euro climbs to 6-week high against dollar; yen gains

By Wanfeng Zhou

NEW YORK, Dec 11 (Reuters) - Stock markets worldwide slipped

on Wednesday after a budget deal in Washington removed some of

the fiscal uncertainty hanging over the U.S. economy, boosting

expectations the Federal Reserve may soon start reducing its

stimulus.

The euro rose against the dollar for a seventh straight

session, helped by higher money market rates and diminishing

expectations of imminent easing by the European Central Bank.

In September, Fed Chairman Ben Bernanke cited tight fiscal

policy as one concern when the U.S. central bank surprised

market participants by keeping the stimulus intact. A budget

showdown in Congress ultimately led to a partial government

shutdown in October.

The to-and-fro over when the Fed will begin to halt the flow

of cheap dollars has dominated trading worldwide for months. A

recent run of strong U.S. data and talk from policymakers have

bolstered expectations the process will start soon.

"Right now, the market is sort of taking all this in. All

eyes are on any tapering in December and while the deal removes

some political uncertainties, it makes tapering more possible,"

said Karyn Cavanaugh, market strategist with ING U.S. Investment

Management in New York.

The MSCI world equity index, which tracks

shares in 45 countries, was down 0.88 percent.

The Dow Jones industrial average ended down 129.60

points, or 0.81 percent, to 15,843.53. The Standard & Poor's 500

Index dropped 20.40 points, or 1.13 percent, to 1,782.22.

The Nasdaq Composite Index lost 56.68 points, or 1.40

percent, to 4,003.81.

The Fed will hold its last policy meeting of the year next

week, on Dec. 17-18.

"It certainly does appear that a window of opportunity could

be opening up for the Fed to act next week without a sharp

market reaction, said CMC Markets strategist Michael Hewson.

"The only question remaining is as to whether they will avail

themselves of it."

Most Asian share markets lurched lower overnight as

investors booked profits on a range of once-crowded positions.

European stocks ended down 0.53 percent.

Euro zone countries edged closer to agreeing on a

long-awaited plan to close ailing banks and at least partly

share the costs involved. The plan would pave the way for a

fundamental reform to underpin the euro and the region's

banks.

The euro rose 0.2 percent to $1.3783, having hit a

six-week high of $1.3810. The dollar lost 0.4 percent against

the yen, trading at 102.44 yen. The dollar index,

which tracks the U.S. currency against a basket of six major

currencies, eased 0.12 percent.

With the euro zone making progress and the European Central

Bank looking increasingly inclined to sit on its hands, the euro

could well top the $1.3832 high of the year, said Societe

Generale FX strategist Alvin Tan.

"I'm afraid this euro squeeze is going to continue," Tan

said. "The liquidity conditions are definitely tightening.

U.S. Treasuries prices slipped as investors pared bond

holdings before a $21 billion auction of 10-year notes, the

second leg of a three-part $64 billion sale of government debt

this week.

The benchmark 10-year note fell 14/32 in price

to yield 2.848 percent.

According to a Reuters poll on Monday, the Fed will begin

trimming its monthly asset purchases in March. But some

economists are warming up to the idea that it will do so as

early as this month or at the January policy meeting.

Despite the expected tapering, an actual interest rate hike

remains a distant prospect. Eurodollar and Fed fund

futures have not fully priced in a first rate rise until

the end of 2015.

Brent crude oil rose 32 cents to settle at $109.70 a

barrel. U.S. crude futures for January delivery settled

down $1.07 at $97.44.

U.S. crude oil stocks slumped 10.6 million barrels last

week, the biggest draw of the year as refiners churned out

distillates in record amounts and gasoline stockpiled, data from

the Energy Information Administration showed on Wednesday.

Gold (Other OTC: GDCWF - news) fell from a three-week high to $1,252 an ounce.

Among emerging markets in the spotlight, a rise in tensions

in Ukraine pushed the cost of insuring the country's debt toward

a four-year high.

Scores of riot police moved against demonstrators during the

night, triggering fears among opposition leaders that they would

crush a protest over the government's decision to spurn an EU

trade deal and move Ukraine further into Russia's orbit.