MSCI's main world stocks index <.MIWD00000PUS> was down 0.53%.
Benchmark Brent crude futures were above $108 per barrel LCOc1 as Yemen's Iran-aligned Houthis launched a new wave of attacks on Saudi Arabia and were digging into positions on the western coast of Yemen along the Red Sea.
U.S. 10-year Treasury yields hit peaks not seen since 2007 ahead of the Fed's rate decision on Wednesday. The yield on benchmark U.S. 10-year notes US10YT=RR rose 3.47 basis points to 4.996%.
German Bund yields DE10YT=RR, the euro area's benchmark, rose to their highest level in over 17 years at 3.56%.
The Bank of Japan is widely expected to raise its interest rate by 25 bps to 1.25% at the end of its two-day meeting on Friday and signal more tightening ahead. Policymakers are seeking to shore up the yen after intervention helped steer the currency away from a 40-year low.
The dollar gained against peers as markets eyed a possible Fed rate increase.
The dollar strengthened 0.48% to 155.07 against the Japanese yen JPY=. The European single currency EUR=EBS was down 0.08% against the dollar at $1.1540.
The dollar index =USD, which measures the greenback against a basket of currencies, rose 0.14% to 99.63.
Spot gold XAU= fell 0.33% to $4,283.64 an ounce.
Commentary on the Treasury selloff
"We have to recognize that this is a very appropriate move in the Treasury market and there should be zero shock factor in the fact that we've had an exuberant economic backdrop, we had earnings growth that just hit 30% last quarter and we have a geopolitical conflict that's driving up commodity prices," said Edison Byzyka, chief investment officer at Credent Wealth Management.
"I think the Fed needs to absolutely raise rates tomorrow. If the Fed does not raise rates by at least a quarter of a (percentage) point, we're going to see the bond market just punish the Treasury market."
Wall Street and Europe trade lower
On Wall Street, all three main indexes were trading lower, with consumer discretionary, communication services and financial stocks driving losses. Energy shares were the biggest gainers.
The Dow Jones Industrial Average .DJI fell 0.89%, the S&P 500 .SPX lost 0.46%, and the Nasdaq Composite .IXIC dropped 0.69%.
Europe's STOXX 600 .STOXX fell 0.29% after hitting its lowest level since June 12. The European tech stock index .SX8P rose 0.10%, after shedding more than 2% on Monday.
Global stocks slip as yields and oil rise
Global stocks were lower on Tuesday, continuing a selloff from the previous session, after U.S. Treasury yields hit their highest level since 2007 and with oil prices firmly above $100 per barrel.
U.S. Treasury yields have risen over the past month as investors weigh expectations for higher interest rates, resilient economic growth and concerns about the country's long-term fiscal outlook given rising inflation.
Investors' attention was turning to the Federal Reserve, with traders anticipating at least a quarter-point hike. Fed Chair Kevin Warsh has been reluctant to provide guidance on the future path of rates.
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