Swedish central bank hikes by 1 percentage point
Fed, BoE, and Swiss central banks eyed
U.S. 2-year bond yield highest in almost 15 years

Global stocks were down sharply on Tuesday while the yield on two-year U.S. Treasury notes rose to almost a 15-year high as investors prepared for the likelihood of another 75 basis point rate hike from the Federal Reserve.

Sweden's central bank raised interest rates by a larger-than-expected full percentage point to 1.75% and warned of more to come over the next six months.

The Fed starts its two-day meeting on Tuesday. Britain, Norway, Switzerland and Japan also have monetary policy meetings this week.

The U.S. two-year note (US2YT=RR) is highly sensitive to shifts in monetary policy expectations and early on Tuesday it hit 3.992%. The last time its yield broke above 4% was Oct. 18, 2007.

Yields on the benchmark 10-r Treasury shot up 11.1 basis points to 3.600%, having topped 3.5% for the first time in 11 years on Monday. The two-year (US2YT=RR) yield was up 4 basis points to 3.986%.

Higher interest rates and continued high inflation - and their impact on the global economy - have been a focus for investors across markets.

"The key to tomorrow is going to be indications by the Fed chief as to what's the next possible move," said Peter Cardillo, chief market economist at Spartan Capital Securities LLC.

On Wall Street, shares of rate-sensitive growth companies were underperforming, while Ford Motor Co dropped after the automaker said inflation-related supplier costs will run about $1 billion higher than expected in the current quarter.

The Dow Jones Industrial Average fell 327.26 points, or 1.06%, to 30,692.42, the S&P 500 lost 37.91 points, or 0.97%, to 3,861.98 and the Nasdaq Composite dropped 53.52 points, or 0.46%, to 11,481.50.

The dollar rose, trading near a two-decade high, as investors held firm on expectations of another aggressive rate hike by the Fed.

The dollar index was on track for its fifth weekly gain in six and was last up 0.5% at 110.04. It hit 110.79 earlier this month for the first time since June 2002.

"Traders and investors are taking cover, aware that the dollar is behaving like a force of nature, and unwilling to face its wrath," said Karl Schamotta, chief market strategist, at Corpay in Toronto.

The rate hike by Sweden's central bank was larger than analysts had expected, causing the Swedish crown to briefly spike against the euro and dollar.

Hikes from the Bank of England and Swiss central bank are expected on Thursday.

China's central bank kept its benchmark lending rates unchanged at a monthly fixing on Tuesday, as expected.

The other exception is the Bank of Japan, also due to meet this week and which has shown no sign of abandoning its ultra-easy yield curve policy despite a drastic slide in the yen and inflation hitting its fastest pace in eight years.

In energy, U.S. crude recently fell 1.78% to $84.20 per barrel and Brent was at $90.56, down 1.57% on the day.