GLOBAL MARKETS-Stocks lower on Fed taper expectations; euro climbs

* U.S. budget deal boosts Fed taper expectations

* World equity index slips 0.61 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 the U.S. Congress announced a provisional

budget deal, which heightened expectations of a stimulus

reduction by the Federal Reserve.

The dollar fell against the euro for a seventh straight

session. The common currency was boosted by higher money market

rates and diminishing expectations of imminent easing by the

European Central Bank.

While the U.S. budget deal removed a key uncertainty hanging

over markets by ending three years of impasse and fiscal

instability in Washington, it strengthened a view that the Fed

may soon start to scale back its $85 billion-a-month stimulus.

"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 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.

The MSCI world equity index, which tracks

shares in 45 countries, slipped 0.56 percent.

The Dow Jones industrial average dropped 77.07

points, or 0.48 percent, to 15,896.06. The Standard & Poor's 500

Index fell 11.66 points, or 0.65 percent, to 1,790.96.

The Nasdaq Composite Index lost 28.90 points, or 0.71

percent, to 4,031.59.

"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."

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

week, on Dec. 17-18.

Most Asian share markets lurched lower overnight as

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

European stocks slipped 0.46 percent.

Euro zone countries edged closer to agreeing 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 0.3 percent to $1.3795, having hit a

six-week high of $1.3800. The dollar lost 0.5 percent against

the yen, trading at 102.37 yen. The dollar index,

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

currencies, eased 0.14 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 so far, 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 3/32 in price to

yield 2.8079 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 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 was down 24 cents at $109.14 a

barrel. U.S. crude futures for January delivery were 75

cents down at $97.76.

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 $1,258 an ounce.

Among emerging markets in the spotlight, a rise in tensions

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

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 Yanukovich's decision to spurn an EU trade

deal and move Ukraine further into Russia's orbit.