(Adds expectations for U.S. market open)
* Oil falls to 2-1/2 month low
* Yen hits Nikkei as expectations for BOJ stimulus wane
* European exchanges mixed, banks fall
* Wall Street set to open steady
By Patrick Graham
LONDON, July 26 (Reuters) - A buoyant yen and a fall in oil prices to their lowest since early May put stock markets on the defensive on Tuesday, as investors position for central bank meetings in the United States and Japan.
The rise in the yen, traditionally a safe haven for capital when investors are concerned by political and economic risks, may be largely due to a recalibrating of expectations for the scale of new economic stimulus from the Bank of Japan on Friday.
Japanese officials have quelled speculation of it dropping outright “helicopter money” into the economy, but even expectations for the scale of extra buying of financial assets with newly minted yen have cooled this week.
A Nikkei report said Japan’s government was likely to double the amount of direct fiscal outlays into the economy over the next few years to 6 trillion yen ($57 billion). But that figure was viewed as too modest to engender a return of inflation that would weaken the yen.
“There had been too many test balloons concerning Japan’s upcoming monetary and fiscal easing programmes over recent weeks,” analysts from Morgan Stanley said in a morning note.
“While such a (6 trillion yen) package would still double the (Finance Ministry’s) ... real fiscal spending estimates, it was far less than markets were hoping for.”
The yen rose around 1.5 percent to 114.88 yen per euro and 104.35 per dollar. Japan’s stock market, which tends to fall as the yen rises, fell 1.4 percent.
Wall Street was set to open roughly flat while Europe’s major markets were mixed in morning trade FCHI>, weighed down by another 1 percent fall in oil prices and a 1.5 percent drop in banking shares.
MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.7 percent to reach its highest in almost a year, aided by gains in China and South Korea.
Stock markets have recovered from the shock of Britain’s vote last month to leave the European Union, largely on the presumption that central banks would wade in with more stimulus to offset any blow to still meagre global growth.
While the doubts over the Bank of Japan may undermine that, Bank of England policymaker Martin Weale - last week an opponent of cutting interest rates - said his view had changed on the back of a poor batch of purchasing managers surveys.
That strengthened expectations of easing of UK monetary policy next month and sent the pound to a two-week low against the euro.
By contrast, Wednesday’s rate decision by the Federal Reserve is expected to provide a slightly more optimistic message that will support expectations of a rise in U.S. rates by the end of the year.
Such a message from the Fed would be likely to support the dollar - already trading close to four-month highs against a basket of currencies - while cooling appetite for stocks and other higher-risk investments.
“There seems to be an expectation that perhaps this week’s Federal Reserve rate meeting could well come across as slightly more hawkish than markets were pricing a week ago,” CMC Markets analyst Michael Hewson said.
“This may help explain the slow rise of the dollar not only against its main counterparts but also against commodity prices.”
NYMEX crude was quoted more than 1 percent lower at $42.68, while Brent fell 32 cents to $44.40 a barrel.
Additional reporting by Anirban Nag; Editing by Alison Williams