GLOBAL MARKETS-Dollar slips, shares weak as U.S. budget worries weigh
* Possible U.S. government shutdown, lack of Fed clarity weigh
* World shares hold near one-week low
* German consumer confidence hits 6-year high
* Oil above $109 as little thaw seen in U.S., Iran relations
LONDON, Sept 25 (Reuters) - The dollar fell and world shares held near a one-week low on Wednesday as concerns over a potential government shutdown in Washington and mixed signals on U.S. monetary policy kept investors on edge.
A United States Senate vote is due later in the day on a motion that would allow the government to keep running beyond the end of the month when budgets are due to expire, though lawmakers have yet to find common ground.
Investors, wrong-footed by last week's shock decision by the Federal Reserve not to begin trimming its bond-buying stimulus, are also in flux over the central bank's next steps and what mixed signals from policymakers say about the strength of the economy.
"We're not seeing a post-Fed party as perhaps the market was initially expecting, and that's causing some safe-haven flows," said Simon Smith, chief economist at FXPro.
The dollar had eased 0.2 percent to 98.63 yen from late U.S. levels on Tuesday and was down 0.1 percent against a basket of major currencies.
The MSCI world equity index, which tracks shares in 45 countries, was flat on the day. The index remains about 1 percent down from the highs reached in the sharp rally immediately after last week's Fed decision.
European stocks edged down 0.1 percent in morning trade , mirroring losses earlier in Asia, where MSCI's broadest index of Asian shares outside Japan slipped 0.2 percent.
Japan's Nikkei fell 0.8 percent despite news of Applied Materials Inc's buyout of Tokyo Electron Ltd , bringing together two of the world's biggest computer chipmakers to create a company with a market value of $29 billion.
U.S. stock index futures point to a steadier tone on Wall Street where the broad S&P 500 has already marked its longest losing streak since last month.
The concerns about the outcome of the U.S. budget talks were keeping the dollar under pressure as well, although traders are also focused on the looming talk on raising the government's borrowing limit, needed to avoid the risk of a debt default.
Any default would rock Wall Street and could even trigger another economic crisis in a nation still struggling to recover from the 2007-09 recession.
"There are so many uncertainties, over policy and over the U.S. debt ceiling negotiations and renewed signs of slowing in China. This is making people reluctant to go back into risk," said Ian Stannard, head of European currency strategy at Morgan Stanley.
He added that the risk of a potential U.S. government shutdown should provide the dollar with near-term support.
The last debt ceiling showdown in 2011 pushed the nation to within days of missing payments and led ratings firm Standard and Poor's to strip Washington of its triple-A credit rating.
U.S. Treasuries have reacted by gaining in price, sending the yield on the benchmark 10-year note to 2.635 percent , its lowest level for nearly six weeks.
The single currency was holding steady against the dollar at around the $1.35 level supported by data on German consumer confidence which was running at a six-year high heading into October.
The data backed up Tuesday's Ifo business morale survey in pointing to a steady recovery in the euro zone's biggest economy although recent weak industrial production numbers and a drop in exports have combined to leave a mixed picture overall.
Ten-year cash German yields fell 1 basis point to 1.79 percent, supported by comments from European Central Bank officials this week that it stood ready to pump another round of money into banking markets if need be.
On commodity markets, steady buying from top consumer China pushed copper futures up 0.4 percent to $7,178.25, putting them on track to snap a three-session losing streak.
Gold rose 0.3 percent to $1,327.25 an ounce, extending Tuesday's gains, which had followed three sessions of losses.
Oil prices firmed against a backdrop of hopeful signals that longstanding tensions in the Middle East could be easing.
U.S. President Barack Obama on Tuesday cautiously embraced overtures from Iran's new president as the basis for a possible nuclear deal, but a failed effort to arrange a simple handshake between the two leaders underscored entrenched distrust that will be hard to overcome.
"There are some hopes there might be a gradual forging of a relationship between the west and Iran, though it's still early days," said Ric Spooner, chief market analyst at CMC Markets.
Front-month Brent crude for November delivery rose about 1.25 percent to $109.90, while November U.S. crude added 0.6 percent to $103.72 a barrel.