Shares steadied on Wednesday as investors cautiously awaited pivotal U.S. inflation data that is expected to put the Federal Reserve on course to cut rates again, while the dollar held near a two-week high.

European shares erased slim losses by early afternoon, having slipped slightly from a seven-week high touched on Monday, as a series of downbeat corporate results weighed.

U.S. stock futures were also little moved ahead of the inflation data, due at 1330 GMT. The S&P 500 had dipped 0.3% on Tuesday although it was only 65 points - just short of 1% - shy of its all-time high.

Investors were cautious because - with an 85% chance of a U.S. rate cut next week priced in and with Wall Street indexes around record highs - potential for disappointment exists.

The median forecast of economists polled by Reuters is for headline and core U.S. consumer prices increasing 0.3% month on month for November. No forecasts were above 0.3%, which analysts say leaves markets vulnerable to a surprise.

"US inflation has been on the stubborn side in recent months," Deutsche Bank analysts wrote. "The general consensus is it’s going to be a stronger one again."

U.S. yields had ticked marginally higher and benchmark 10-year yields were steady at 4.230%. [US/]

The U.S. dollar index, which measures the currency against the yen and five other major peers, rose slightly to 106.48. It had reached a one-week high of 106.63 in the previous session.

Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5%.

China's yuan fell and currencies across Asia lost ground on the dollar after Reuters reported that China was considering allowing a weaker currency next year to weather any higher tariffs.

The yuan fell around 0.3% to 7.2803 per dollar, with the Korean won and the China-sensitive Australian and New Zealand dollars also dipping.

CUTS AHEAD

The Canadian dollar touched a 4-1/2 year low on Tuesday and, at C$1.4176 per dollar, was close by on Wednesday as traders saw an 89% chance of a super-sized 50 basis point rate cut by the Bank of Canada later on Wednesday. [CAD/]

Canada has already reduced rates by 125 basis points (bps) this cycle but news last week that the jobless rate spiked to an eight-year high of 6.8% in November has driven bets on an extra 50 bps of cuts, which would bring the overnight rate to 3.25%.

"We think today's Bank of Canada decision may have some read over to the US," ING analysts wrote, noting that a 50 bps cut would signal a "strong view" that the Fed will cut rates by 25 bps next week.

Broader foreign exchange markets were steady, with the euro down 0.1% at $1.0515 and the yen last fetching 152.61 per dollar. [FRX/]

Sterling was at its strongest against the euro in two-and-a-half years, supported by a relatively hawkish Bank of England and political uncertainty in France and Germany, though it also dipped against the dollar.

Markets have fully priced a European Central Bank rate cut on Thursday and a 61% chance of a 50 bps cut from the Swiss National Bank, which would help cool a rally in the franc.

In other commodity markets, China's big policy shift this week seemed to lend support to oil prices, with Brent crude futures up 0.3% to $72.38 a barrel.

Arabica coffee prices hit a record just above $3.48 a pound on Tuesday as dealers worried that a drought would hurt output for top producer Brazil.

(Reporting by Tom Wilson in London and Tom Westbrook in Singapore; Editing by Kim Coghill, Bernadette Baum and Timothy Heritage)