* Fall in U.S. bond yields improves sentiment
* MSCI ACWI on course to log first monthly loss since Oct 2016
* Rise in dollar interest rates, yield still a threat to shares
* European shares seen rising 0.4-0.5 pct on opening
TOKYO, Feb 27 (Reuters) - Global shares held firm near three-week highs on Tuesday as U.S. borrowing costs eased ahead of Federal Reserve Chairman Jerome Powell's awaited first congressional testimony later in the day.
European shares are expected to gain, with spread-betters looking to a higher opening of about 0.4 to 0.5 percent in Britain's FTSE, France's Cac and Germany's Dax
Japan's Nikkei rose 1.1 percent to three-week highs while MSCI's broadest index of Asia-Pacific shares outside Japan also hit a three-week high before giving up gains on profit-taking in Chinese shares.
On Wall Street, the S&P 500 advanced 1.18 percent on Monday helped by a fall in U.S. bond yields.
The 10-year U.S. Treasuries yield eased to 2.864 percent, dropping further from its four-year peak of 2.957 percent touched on Feb. 21, driven by month-end buying as well as position adjustments ahead of Powell's testimony.
Powell's debut appearance is seen as critical for financial markets at a time when many investors are nervous about the Fed's policy normalisation following years of stimulus after the financial crisis almost a decade ago.
Many investors expect the Fed to raise interest rates three times this year, with some pundits predicting four, if U.S. inflation starts to take off, especially as growth is set to get another boost from the Trump administration's tax cuts and spending plans.
Yet, there are worries higher dollar bond yields could prompt investors to shift funds to bonds from riskier assets, especially when the valuation of the world's stocks are quite expensive even after their sell-off earlier this month.
The two-year U.S. Treasuries yield was 2.226 percent, well above the dividend yield of the S&P 500, which stood at 1.88 percent.
A rise in dollar interest rates could also bode ill for potential borrowers, including U.S. home buyers and many companies that have expanded borrowing for years to take advantage of low dollar funding costs.
"Expectations that Powell will be sensitive to financial markets appear to be running high. But he hasn't said he will sacrifice policy normalisation for the sake of financial markets. I feel there is room for disappointment in markets," said Hiroko Iwaki, senior bond strategist at Mizuho Securities.
MSCI's gauge of equity market performance in 47 countries , which gained 0.8 percent on Monday, rose another 0.1 percent on Tuesday, taking it to a new three-week high.
Still, it is down 2.2 percent so far this month, suggesting its record 15-month winning streak that began in November 2016 is at risk.
"The combination of low interest, low inflation and strong economic growth, the best combination for markets that also kept market volatilities low, is coming to an end," said Mutsumi Kagawa, chief global strategist at Rakuten Securities,
He said that while corporate earnings will likely remain strong for some time longer, underpinning stocks, market volatility will be higher.
In the currency markets, the euro traded at $1.2327, up 0.1 percent in Asia but off its three-year high of $1.2556 hit earlier this month.
The dollar traded at 106.85 yen, stabilising for now above its 15-month low of 105.545 set on Feb 16.
Fed funds rate futures were almost fully pricing in a rate hike at the Fed's next policy meeting on March 20-21.
Oil prices held firm at three-week highs, supported by supported by signs of stronger demand, robust production curbs led by OPEC and a slight fall in U.S. output.
U.S. West Texas Intermediate futures fetched $63.86, little changed from U.S. close on Monday, after hitting a three-week high of $64.24 the previous day.
London Brent crude traded flat at $67.48 a barrel, after hitting a three-week high of $67.90 the previous day.
(Editing by Kim Coghill and Richard Borsuk)