SINGAPORE, Sept 17 (Reuters) - Asian stocks wobbled on

Tuesday while the dollar and U.S. Treasury yields came under

pressure, with just a day to go before the expected start of the

Federal Reserve's easing cycle that could see policymakers

deliver an outsized rate cut.

Extended holidays in China and South Korea made for thin

trading conditions, with investors focused on Wednesday's Fed

decision as odds have crept up in the past week in favour of a

50-basis-point rate cut.

That kept the dollar languishing near its lowest level in

over a year against the yen at 140.70, further weighed

down by a drop in U.S. Treasury yields.

The two-year Treasury yield, which typically

reflects near-term rate expectations, was last at 3.5571%,

having fallen to a two-year low of 3.5280% overnight.

The benchmark 10-year yield was little changed

at 3.6195%.

Futures show that markets are now pricing in a 67%

chance that the Fed could ease rates by half a percentage point

at the conclusion of its monetary policy meeting on Wednesday,

after a slew of media reports revived the prospect of more

aggressive easing.

"The case for a 50bps rate cut this week hinges in part on

the idea that rates are well above most estimates of neutral -

if officials judge that keeping policy in restrictive territory

for too long creates unnecessary risk for the economy then there

is no sense in dragging their feet," said Neil Shearing, group

chief economist at Capital Economics.

"The problem is this is a high bar for a large rate cut,

particularly at the start of the easing cycle. If nothing else,

it creates the impression that central bankers have made a

mistake and fallen behind the curve."

For the year, markets have priced in roughly 120bps worth of

easing by December.

Uncertainty over the scale of Wednesday's likely Fed rate

cut kept shares in Asia subdued, with MSCI's broadest index of

Asia-Pacific shares outside Japan up just 0.1%.

Japan's Nikkei fell 0.6%, dragged by technology

names as they tracked a decline on Wall Street.

Stock futures were mixed. S&P 500 futures and Nasdaq

futures fell 0.12% and 0.05%, respectively, while

EUROSTOXX 50 futures and FTSE futures tacked on

more than 0.3% each.

RATE DECISIONS

The Bank of England (BoE) and the Bank of Japan (BOJ) also

meet this week to discuss monetary policy, where both central

banks are seen keeping rates on hold.

Expectations of less aggressive easing by the BoE have in

turn kept sterling supported. It was last 0.09% lower

at $1.3204, but strayed not too far from August's peak of

$1.3269, its strongest level since March 2022.

"We forecast the BoE will keep the bank rate unchanged, at

5.0%, at its September policy meeting," said economists at ANZ.

"We expect it will adopt a gradualist approach in the early part

of its easing cycle."

Elsewhere in Asia, China's stuttering economic recovery

continued to weigh on sentiment, after data over the weekend

showed the country's industrial output growth slowed to a

five-month low in August, while retail sales and new home prices

weakened further.

Still, concerns over faltering Chinese demand for oil were

overshadowed by the ongoing impact of Hurricane Francine on

output in the U.S. Gulf of Mexico, sending oil prices rising on

Tuesday.

Brent crude futures rose 0.18% to $72.89 a barrel,

while U.S. crude futures gained 0.43% to $70.40 per

barrel.

Spot gold eased 0.06% to $2,580.51 an ounce.

(Editing by Shri Navaratnam)