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Shares wobble as Fed rate talk revives

"A bit of internal party bickering doesn't normally impact sterling but this time it has because of the possible implications for Brexit," Jasper Lawler, market analyst at CMC Markets, said in a note.

Pedestrians wearing masks are reflected in an electronic board showing various stock prices outside a brokerage in Tokyo, Japan, February 26, 2016.

Asian stocks seesawed on Tuesday as hawkish comments from U.S. Federal Reserve officials clouded the monetary policy outlook less than a week after Fed Chair Janet Yellen had set out a more cautious path to interest rate increases this year.

The dollar got a mild boost from the suggestion that interest rate hikes could be on the way sooner rather than later.

Financial spreadbetting firm IG predicted Britain's FTSE 100 would open 4 points lower, Germany's DAX would fall 8 points and France's CAC 40 would gain 1 point.

Atlanta Fed President Dennis Lockhart said the central bank might be in line for a rate hike as soon as April, as policymakers' decision to hold rates steady last week was more about ensuring that recent global financial volatility had settled down.

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San Francisco Fed President John Williams told Market News International he would advocate another hike as early as April, and Richmond Fed President Jeffrey Lacker said U.S. inflation is likely to accelerate in the coming years and move toward the Fed's 2 percent target.

MSCI's broadest index of Asia-Pacific shares outside Japan was down for much of the session but was last up 0.1 percent, after all three U.S. stock indexes posted small gains overnight.

China stocks slipped, as the market weighed new guidelines on pension products and recent comments by the central bank governor that some short-term speculative funds may be leaving the country. The CSI300 index fell 0.6 percent, while the Shanghai Composite Index lost 0.4 percent.

Japan's Nikkei stock index added 1.9 percent, closing at a one-week high, after markets in Tokyo reopened after a public holiday on Monday. A weaker yen gave a tailwind to shares.

"People who bought the yen and sold stocks last week seem to be unwinding their positions," said Takuya Takahashi, a strategist at Daiwa Securities in Tokyo.

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The dollar nursed losses last week after the Fed halved its outlook for interest rate increases to two from four by the end of this year and said an uncertain global outlook posed risks to the U.S. economy. The latest round of official Fed remarks allowed the greenback to take back some of that lost ground.

The dollar index, which tracks the U.S. unit against a basket of six major rival currencies, was steady at 95.278.

The dollar rose 0.2 percent against the yen to 112.13, pulling well away from Thursday's 17-month low of 110.67.

The euro edged up about 0.1 percent to $1.1258, but was below last week's one-month peak of $1.1342.

Sterling inched higher but remained pressured by concerns about Prime Minister David Cameron's ability to keep Britain in the European Union after leading 'Out' campaigner Iain Duncan Smith resigned from the cabinet late on Friday.

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Sterling was last buying $1.4387, up about 0.2 percent but well below Friday's one-month high of $1.4514.

The Australian dollar firmed, rising 0.4 percent to $0.7603. Reserve Bank of Australia (RBA) Governor Glenn Stevens made no comment on the immediate outlook for further rate cuts, but sounded an upbeat tone on the country's economy and the strength of its financial system.

U.S. crude erased early losses and built on the previous session's gains made on data showing a drawdown at the Cushing, Oklahoma delivery hub. It was up about 0.4 percent at $41.68 a barrel after rising 1.19 percent in the previous session. Brent added 0.4 percent to $41.69 after settling up 0.8 percent on Monday.

Spot gold added about 0.3 percent to $1,246.10 an ounce after logging three losing sessions.

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