* Investors focused on whether Fed to turn more hawkish
* Oil tops $114 a barrel on Iraq concerns (Adds Wall Street downturn; updates dollar, Treasury and oil prices)
By Michael Connor
NEW YORK, June 18 (Reuters) - The dollar dipped and Wall Street equities softened on Wednesday as global markets puzzled over the odds that Federal Reserve Chair Janet Yellen will soon strike a more hawkish tone on monetary policy.
Prices of U.S. Treasuries recouped Tuesday’s losses. U.S. data on Tuesday showing inflation running at an unexpectedly high 2 percent a year stirred expectations that the Fed would be open to raising interest rates sooner than some had thought.
The Fed’s policy-setting panel, the Federal Open Market Committee, is due to issue its policy statement at 2 p.m on Wednesday, at the close of a two-day meeting, followed a half hour later by a news conference by Yellen.
“We are seeing a lot of caution ahead of the FOMC,” said Sireen Harajli, currency strategist at Mizuho Corporate Bank in New York. “We see some modest pressure on the dollar.”
The dollar index, which gauges the greenback against the euro, Japanese yen and four other currencies, dipped 0.09 percent to 80.554.
U.S. stocks eased modestly after a three-day winning streak for the S&P 500 index.
The Dow Jones industrial average fell 33.75 points, or 0.2 percent, to 16,774.74, the S&P 500 lost 0.78 points, or 0.04 percent, to 1,941.21, and the Nasdaq Composite dropped 6.11 points, or 0.14 percent, to 4,331.12.
Adobe Systems jumped 7 percent to $72.42 after the maker of Photoshop and Acrobat software late on Tuesday reported better-than-expected quarterly profit and revenue.
Trading in Treasuries also focused on Fed policy. Prices rose after the Bank of England released minutes from its policy meeting that were less hawkish than expected.
Investors have been more wary of central banks becoming more hawkish since Bank of England Governor Mark Carney surprised markets last Thursday by saying Britain could become the first major economy to tighten monetary policy since the 2008 financial crisis
“The minutes were less hawkish than what Carney said last week,” said Tom Tucci, head of Treasuries trading at CIBC in New York.
Short covering also aided prices, Jason Rogan, managing director at Guggenheim Securities in New York, said.
Benchmark 10-year notes rose 6/32 in price to yield 2.63 percent, down from 2.65 percent late on Monday. Intermediate-dated debt also outperformed, with five-year notes gaining 5/32 in price to yield 1.72 percent, down from 1.75 percent.
The risk of a faster U.S. policy tightening was enough to keep European stocks from hitting new multi-year highs. The FTSEurofirst 300 index of top European shares was off 0.02 percent at 1,387.44.
In other markets, Brent crude oil rose 69 cents and topped $114 per barrel at $114.13 as a strike by Sunni militants on a key refinery near Baghdad stoked worries about oil exports from key producer Iraq. (Editing by Chizu Nomiyama and Leslie Adler)