* Brent crude futures fall 1% to $102.28 a barrel

* Japan's Nikkei up 2%, Wall St futures edge up

* Fed dot plot may suggest if 1 cut this year remains

By Stella Qiu

SYDNEY, March 18 (Reuters) - Asian shares rallied on

Wednesday as oil prices paused their gains, with markets turning

to the U.S. Federal Reserve meeting to see how policymakers will

balance growth and inflation risks amid ongoing geopolitical

tensions in the Middle East.

Israel intensified its offensive by killing Iran's security

chief, while Iran renewed its strikes on oil facilities in the

United Arab Emirates. A senior Iranian official said the new

supreme leader rejected de-escalation offers conveyed by

intermediaries, signalling no quick end to a war that has

unleashed a global oil shock.

Oil prices took a breather on Wednesday from recent gains

though the Strait of Hormuz remained largely shut. Brent crude

futures dropped 1% to $102.28 a barrel, while U.S. West

Texas Intermediate crude fell 1.6%.

That is proving to be a comfort for equity investors, with

MSCI's broadest index of Asia-Pacific shares outside Japan

up 1.2%. Japan's Nikkei rallied 2%.

Chinese blue-chips inched up 0.1% while Hong

Kong's Hang Seng index rose 0.3%.

Natasha Kaneva, head of global commodities research at

JPMorgan, said the apparent stability in Brent and WTI reflects

a temporary buffer created by regional inventory overhangs,

benchmark composition and policy interventions.

"If the Strait does not reopen...Brent and WTI will

ultimately reprice higher as Atlantic basin inventories are

drawn down and the global market is forced to clear at a

materially tighter supply level," she said.

The United Arab Emirates may join a U.S.-led effort to

protect shipping in the Strait of Hormuz, but several Western

countries have already rebuffed calls from U.S. President Donald

Trump to send warships to escort oil tankers in the region.

Both S&P 500 futures and Nasdaq futures inched

up 0.2% after Wall Street gained overnight, supported by

expectations of strong earnings from chipmaker Micron Technology ( MU )

. Investors will be watching out for commentary on chip

shortages and pricing from its results due later on Wednesday.

FOCUS TURNS TO FED AND POWELL

After the Reserve Bank of Australia kicked off a busy week

for global central banks with a rate hike, all eyes are now on

the Fed's policy meeting later in the day. Attention will be on

its updated economic forecasts, especially the "dot plot," where

the risk is it might no longer project any rate cuts at all this

year.

The Fed is widely expected to keep its policy steady but the

debate will very much centre on whether the Iran conflict is

more likely to disrupt economic growth, threaten more persistent

inflation or create a confounding mix of economic slowing and

rising prices.

Fed Chair Jerome Powell, who is due to step down in May,

will also hold a press conference, and markets will be watching

for any hint on whether he intends to remain on the Board as a

governor once his term as the chair ends.

"Consensus still points to the median dot plot showing one

25-basis-point cut for 2026, aligning with current market

pricing," said Tony Sycamore, analyst at IG.

"That said, there's a decent chance the dots could shift

more hawkish, perhaps even to zero cuts, if the committee views

the oil shock as leading to stickier inflation."

The Bank of Canada also meets later on Wednesday where no

policy change is expected. Markets are wagering the next move

will be up, with one rate hike fully priced in by the year-end.

In currency markets, the U.S. dollar was on the back foot

with the euro holding at $1.1539, after rising 0.3%

overnight.

The Japanese yen steadied at 159 per dollar,

having gained for two straight days to move away from the 160

level that has triggered official intervention in the past.

Treasuries bounced a little overnight, helped by a solid

auction of 20-year Treasury bonds. Yields on 10-year Treasury

notes were flat at 4.2024%, having declined 2 basis

points overnight.

(Editing by Jacqueline Wong)