( From Reuters)

Asian stocks slipped on Tuesday as financial markets braced for the possibility of Greece defaulting on its debt, while a two-day policy meeting of the U.S. Federal Reserve’s monetary committee starting later in the day also prompted caution.

Global equity markets have felt a pinch after talks between cash-strapped Athens and its creditors broke down over the weekend, with Greece only having two weeks before it has to repay 1.6 billion euros ($1.8 billion) to the International Monetary Fund. Sentiment soured further on Monday as both sides hardened their stance.

“The macro duo of the FOMC and Greece continue to create jitters – it will be a daily theme for the next month; in the case of the Fed, the next three to four months,” Evan Lucas, market strategist at IG in Melbourne, wrote.

The two-day Federal Open Market Committee (FOMC) meeting begins later on Tuesday and the focus was on whether the U.S. central bank offers a hint of an interest rate rise later in the year.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dropped 0.5 percent. Shanghai .SSEC lost 2.6 percent and South Korea’s Kospi .KS11 fell 1.4 percent. Japan’s Nikkei .N225 dropped 0.6 percent, with external factors overcoming bullish domestic incentives.

“The Japanese economic recovery is gaining momentum so the market could have gone up but a correction in overseas equity markets is weighing,” said Masayuki Kubota, chief strategist at Rakuten Securities in Tokyo.

In currencies, the euro EUR= did not feel a sustained impact from the ongoing Greek debt saga, while there was some speculation the Fed meeting could spring a surprise or two that weakens the dollar.

The common currency steadied after erasing losses overnight as the shock of failed talks between Greece and its creditors on Sunday faded for the moment. The euro was little changed at $1.1278, having pulled back from an overnight low of $1.1189.

The dollar received a small lift after Bank of Japan Governor Haruhiko Kuroda said his remarks on the yen last week wasn’t an assessment on nominal forex levels. Kuroda had caused a sharp drop in the dollar last week when he implied the yen was already very weak.

The dollar was up 0.1 percent at 123.55 yen JPY= after rising to 123.815.

U.S. crude oil rose as a tropical storm hit the coast of oil-producing Texas. U.S. crude CLc1 was up 0.7 percent at 59.96 a barrel, paring the previous day’s losses suffered on Greek debt angst. [O/R]

(Additional reporting by Hideyuki Sano in Tokyo; Editing by Eric Meijer and Richard Borsuk)

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