By Chuck Mikolajczak

NEW YORK (Reuters) - A gauge of global equity markets was slightly higher after touching its highest level in over a year on Wednesday and U.S. Treasury yields fell for a second session as expectations for a rate hike by the U.S. Federal Reserve remained subdued.

According to the Fed's Beige Book report of anecdotal information collected from business contacts, the U.S. economy expanded at a modest pace in July and August. But there was little sign that wage pressures are being felt beyond highly-skilled jobs, which the Fed is looking for to push inflation higher.

But comments from Richmond Fed President Jeffrey Lacker and Kansas City Federal Reserve President Esther George on Wednesday hinted that the possibility of a rate hike in September remained on the table.

The probability for a September rate hike inched up to 18 percent in the wake of the comments, from 15 percent in the prior session, according to CME's FedWatch tool, while expectations for a hike in December nudged closer to 50 percent.

A weaker-than-expected August employment report on Friday and Tuesday's soft data on the services sector have crimped expectations the Fed will boost interest rates when it meets next week and for the rest of the year.

"We've had very quiet market activity for a couple of months ... And a lot of uncertainty on policy," said Tim Courtney, chief investment officer at Exencial Wealth Advisors.

The Dow Jones industrial average <.DJI> fell 24.24 points, or 0.13 percent, to 18,513.88, the S&P 500 <.SPX> lost 2.15 points, or 0.1 percent, to 2,184.33 and the Nasdaq Composite <.IXIC> dropped 4.55 points, or 0.09 percent, to 5,271.35.

U.S. stocks were led lower by the consumer staples sector <.SPLRCS>, off 0.9 percent. General Mills <GIS.N> shares lost 4 percent to $68.04 after the company said its first-quarter organic net sales will be below its full-year guidance range.

European shares reversed early losses, with the FTSEurofirst 300 <.FTEU3> closing up 0.3 percent. MSCI's all-country world index <.MWD00000PUS> edged up 0.06 percent after touching an intraday high of 424.71, its highest level since August 11.

Oil prices turned positive in volatile session, as the market weighs the prospect of higher supplies against the possibility that the world's top producers could agree on a production freeze. Brent futures <LCOc1> climbed 1.5 percent at $47.95 and U.S. crude advanced 1.4 percent at $45.46 a barrel.

Falling expectations for a rate hike sent U.S. Treasury yields lower, with benchmark 10-year Treasury notes <US10YT=RR> were up 2/32 in price to yield 1.5357 percent, from 1.543 percent on Tuesday. Yields fell as low as 1.519 percent, a three-week trough.

The dollar was last down 0.2 percent at 101.75 yen <JPY=>, having fallen as low as 101.18, its weakest since Aug. 26, after a report from the Sankei newspaper that Bank of Japan policymakers are divided ahead of the central bank's next meeting.

But the dollar index <.DXY>, which measures the greenback against a basket of major currencies, edged up 0.16 percent to 94.986 after a drop of more than 1 percent on Tuesday.

(Additonal reporting by Yashaswini Swamynathan; Editing by Nick Zieminski)