By Caroline Valetkevitch
NEW YORK, Sept 20 (Reuters) - Global stocks were down sharply on Tuesday while the yield on two-year U.S. Treasury notes rose to almost a 15-year high as investors prepared for the likelihood of another 75 basis point rate hike from the Federal Reserve.
Sweden's central bank raised interest rates by a larger-than-expected full percentage point to 1.75% and warned of more to come over the next six months.
The Fed starts its two-day meeting on Tuesday. Britain, Norway, Switzerland and Japan also have monetary policy meetings this week.
The U.S. two-year note US2YT=RR is highly sensitive to shifts in monetary policy expectations and early on Tuesday it hit 3.992%. The last time its yield broke above 4% was Oct. 18, 2007.
Yields on the benchmark 10-r Treasury shot up 11.1 basis points to 3.600%, having topped 3.5% for the first time in 11 years on Monday. The two-year US2YT=RR yield was up 4 basis points to 3.986%.
Higher interest rates and continued high inflation - and their impact on the global economy - have been a focus for investors across markets.
"The key to tomorrow is going to be indications by the Fed chief as to what's the next possible move," said Peter Cardillo, chief market economist at Spartan Capital Securities LLC.
On Wall Street, shares of rate-sensitive growth companies were underperforming, while Ford Motor Co F.N dropped after the automaker said inflation-related supplier costs will run about $1 billion higher than expected in the current quarter.
The Dow Jones Industrial Average .DJI fell 327.26 points, or 1.06%, to 30,692.42, the S&P 500 .SPX lost 37.91 points, or 0.97%, to 3,861.98 and the Nasdaq Composite .IXIC dropped 53.52 points, or 0.46%, to 11,481.50.
The pan-European STOXX 600 index .STOXX lost 1.06% and MSCI's gauge of stocks across the globe .MIWD00000PUS shed 0.70%.
The dollar rose, trading near a two-decade high, as investors held firm on expectations of another aggressive rate hike by the Fed.
The dollar index was on track for its fifth weekly gain in six and was last up 0.5% at 110.04 =USD. It hit 110.79 earlier this month for the first time since June 2002.
"Traders and investors are taking cover, aware that the dollar is behaving like a force of nature, and unwilling to face its wrath," said Karl Schamotta, chief market strategist, at Corpay in Toronto.
The rate hike by Sweden's central bank was larger than analysts had expected, causing the Swedish crown to briefly spike against the euro and dollar.
Hikes from the Bank of England and Swiss central bank are expected on Thursday.
China's central bank kept its benchmark lending rates unchanged at a monthly fixing on Tuesday, as expected.
The other exception is the Bank of Japan, also due to meet this week and which has shown no sign of abandoning its ultra-easy yield curve policy despite a drastic slide in the yen and inflation hitting its fastest pace in eight years.
In energy, U.S. crude CLc1 recently fell 1.78% to $84.20 per barrel and Brent LCOc1 was at $90.56, down 1.57% on the day.
World FX rates YTDhttp://tmsnrt.rs/2egbfVh
Global asset performancehttp://tmsnrt.rs/2yaDPgn
Asian stock marketshttps://tmsnrt.rs/2zpUAr4
Two-year Treasury yields approach 4%https://tmsnrt.rs/3qT4Sty
(Additional reporting by Huw Jones in London and Devik Jain and Ankika Biswas and Gertrude Chavez-Dreyfuss; Editing by Edwina Gibbs, Will Dunham and Alison Williams)
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