GLOBAL MARKETS-Investor caution ends share rally, dollar steadies
* World share gains pause after sharp rally
* Worries over timing of Fed taper resurface
* U.S. stocks head for mixed day after Monday's
* Copper, silver at 3-mth lows, oil eases
LONDON, Nov 19 (Reuters) - World shares fell on Tuesday as concern that the recent stock rally has been overdone grew after the OECD cut its global economic forecasts, while doubt over when the Federal Reserve may trim its stimulus supported the dollar.
In its latest snapshot of economic activity, the Paris-based Organisation for Economic Cooperation and Development (OECD) cut its 2014 forecast for global economic growth to 3.6 percent from the 4.0 percent it saw in May.
Equity investors are concerned that the recent rally, driven by the loose policies of major central banks, has far outpaced the underlying economic improvement, leaving share prices ripe for a sharp fall.
"From our perspective we're getting close to selling into this strength," said Wouter Sturkenboom, investment strategist at fund managers Russel Investments. "I think you'd be hard pressed real money being willing to go overweight and be very confident about it, and that's the problem."
The sustainability of the current rally was called into question on Monday when the Dow and the S&P 500 retreated from record levels near the close of trading. Stock index futures pointed to a mixed session later.
MSCI's world equity index, tracking shares in 45 countries, followed the tone set by Wall Street and edged down 0.2 percent, backing away from Monday's 6-year peak.
In Europe, the worries about high share values amid a generally weak quarterly earnings season and signs of a fragile economic recovery left the broad FTSEurofirst 300 index was 0.6 percent lower by late morning, off from a 5-year peak.
"Pan-European multiples are close to multi-year highs. That means markets are no longer cheap and we need to see some earnings improvement to warrant higher equity prices," said Gerhard Schwarz, head of equity strategy at Baader Bank.
A strong reading on German analyst and investor sentiment from the ZEW think tank had little impact as the positive outlook was offset by a fall in the survey's current conditions index to a level below forecasts.
Earlier, optimism sparked by China's bold economic reform plans had continued to bolster Asian markets, lifting MSCI's index of Asia-Pacific shares outside Japan by 0.1 percent to add to Monday's 1.4 percent rally.
DOLLAR FINDS FRIENDS
The dollar held steady on Tuesday caught between talk the U.S. central bank could keep its easy policy stance until March next year, and some optimistic comments on the economy by two top Fed officials that may mean an earlier move.
William Dudley, president of the Federal Reserve Bank of New York and one of the staunchest supporters of the Fed's easy-money policies, cited labour market improvements and stronger-than-expected growth in the third quarter as positive signs for the U.S. economic recovery.
The mere hint that a December tapering is still possible was enough to keep the dollar index steady against six other major currencies at 80.83, though still not far from Monday's low of 80.565. Against the yen, the dollar had fallen just 0.1 percent to 99.87 yen.
While the euro eased slightly to be at 1.3490, having hit a 12-day high of $1.3542 on Monday, extending its recovery after a sharp drop to two-month low of $1.3295 on Nov. 7 in the wake of the European Central Bank's surprise rate cut earlier this month.
Euro zone government bonds moved within narrow ranges with 10-year German yields slightly firmer at 1.7 percent, while lower-rated Spanish and Italian yields were little changed.
In commodity markets, the renewed concerns over when the U.S. Federal Reserve could begin to taper its monetary stimulus kept prices under pressure, with copper trading near a three-month at $6,964 a tonne.
Gold inched lower to reach $1,270.55 an ounce after dropping 1.2 percent on Monday, though silver had edged to a fresh three-month low of $20.29 an ounce.
Brent oil had slipped to near $108 a barrel amid the Fed worries but it was gaining support from continuing oil supply disruption in Libya.
DAVOS, Switzerland - Central banks have done their best to rescue the world economy by printing money and politicians must now act fast to enact structural reforms and pro-investment policies to boost growth, central bankers said on Saturday.