GLOBAL MARKETS-Shares decline as oil jumps with Fed in focus

* Brent crude futures jump to nearly $110 a barrel

* Stocks fall as oil turns higher, PPI hotter than expected

* Fed likely to keep rates unchanged (Updates to US market open)

By Chuck Mikolajczak

NEW YORK, March 18 (Reuters) - Global stocks fell on Wednesday, erasing earlier gains as oil prices reversed course to head up, while a reading on U.S. inflation was higher than expected ahead of a Federal Reserve monetary policy announcement. U.S. crude rose 1.86% to $98.00 a barrel and Brent rose to $108.51 per barrel, up 4.92% after Iran's huge Pars gas field was hit on Wednesday. It was the first reported strike on Iranian energy infrastructure in the Gulf during the U.S.-Israeli war on Iran, a major escalation that prompted Tehran to warn its neighbours to evacuate their energy installations.

Crude prices showed little reaction to the announcement by the Trump administration for a 60-day waiver of Jones Act shipping law in a bid to help ease deliveries of fuel and fertilizer to combat rising prices and supply disruptions. Adding to inflationary concerns caused by spiking energy prices, the Labor Department said its Producer Price Index (PPI) for final demand surged 0.7% last month, the most since last July, and well above the 0.3% rise forecast by economists polled by Reuters.

In the 12 months through February, the PPI increased 3.4%. That was the largest gain in a year and followed a 2.9% advance in January.

"Everybody has expected that the increase in oil is going to feed in, probably not as soon as the PPI number that we got," said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Southfield, Michigan.

"You take that, which was unexpectedly poor news, you layer on oil prices on top of that, and this risk of a second surge in inflation becomes a lot more real."

On Wall Street, U.S. stocks were lower in early trading, with the S&P 500 energy index the sole advancer among the 11 major S&P sectors.

The Dow Jones Industrial Average fell 433.33 points, or 0.92%, to 46,559.93, the S&P 500 fell 38.78 points, or 0.58%, to 6,677.31 and the Nasdaq Composite fell 133.09 points, or 0.59%, to 22,346.44. Other data from the Commerce Department showed factory orders rose 0.1%, which matched expectations, after an upwardly revised 0.4% drop in December.

MSCI's gauge of stocks across the globe fell 2.85 points, or 0.28%, to 1,010.20 and was on track to snap a two-day run of gains, while the pan-European STOXX 600 index dropped 0.87%.

FOCUS TURNS TO FED AND POWELL

Investors are also awaiting a glut of central bank decisions, with the Fed, European Central Bank, Bank of England and Swiss National Bank all announcing policy statements this week. The Reserve Bank of Australia kicked things off on Tuesday by hiking interest rates for a second straight month, taking its benchmark rate to 4.1% and warning of a material inflation risk from the Iran war. That was followed on Wednesday by the Bank of Canada, which kept its key policy rate on hold, as expected, but Governor Tiff Macklem warned it was ready to raise borrowing costs if higher energy prices risked turning into persistently elevated inflation.

But the focus is squarely on the Fed's decision later on Wednesday, and while the central bank is widely expected to hold rates steady, investors will monitor whether any comments about the jump in oil prices could alter current expectations about the path of monetary policy.

The yield on benchmark U.S. 10-year notes rose 3 basis points to 4.232% while the 2-year note yield, which typically moves in step with interest rate expectations for the Fed, rose 3.9 basis points to 3.71%.

The 10-year yield is up about 27 basis points in March while the 2-year has jumped about 33 basis points.

The ECB meets on Thursday.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.26% to 99.81, with the euro down 0.21% at $1.1514.

Against the Japanese yen, the dollar strengthened 0.32% to 159.49, the key 160 level that has previously prompted interventions by the Bank of Japan to prop up the currency.