* Dismal earnings from Alcoa and Illumina hit Wall St
* US 10-year bond yield near 4-month high on Fed, inflation
* Dollar rises to 7-month high
* Pound bounces back from low in volatile trade
* European shares seen steady to slightly higher
By Hideyuki Sano
TOKYO, Oct 12 (Reuters) - Asian shares hit three-week lows on Wednesday after a dour start to Wall Street's earnings season knocked U.S. stocks, while the dollar and Treasury yields were at multi-month highs on growing expectations of a U.S. interest rate hike in December.
The British pound jumped back from lows in a volatile trading session, though concerns about a damaging "hard Brexit" are likely to keep the currency under pressure.
European shares were expected to be steady to slightly higher, with spread-betters looking for a rise of 0.2 percent in Germany's DAX, a 0.1 percent gain in France's CAC and a flat opening in Britain's FTSE.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4 percent, while Japan's Nikkei futures slipped 0.9 percent.
On Wall Street, the S&P 500 Index fell 1.2 percent to a near one-month low, and dipped below its 100-day moving average - seen as a major support - for the first time since June.
Shares of aluminium producer Alcoa tumbled 11.4 percent and diagnostics test maker Illumina plummeted 24.8 percent following their disappointing earnings, casting a pall over the market.
Also undermining risk sentiment were rises in global bond yields.
"Rising bond yields will be a major market theme in coming three months or so. For one, there's speculation that central banks in both Europe and Japan could start tapering," said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management.
"Inflation expectations are rising because of oil and U.S. wage growth. We don't expect oil prices to hit $80 or $90, but even if they stay around $50, that's about 10 percent above their levels last year, thus putting inflationary pressure."
Investors are growingly convinced that the U.S. Federal Reserve will raise interest rates in December while avoiding a hike at its next meeting less than a week before the U.S. presidential election.
The 10-year U.S. Treasuries yield rose to 1.781 percent on Tuesday, its highest level since early June, and last stood at 1.778 percent.
U.S. interest rate futures <0#FF:> are pricing in about a 75 percent chance of a rate hike by December, little changed over the past couple of days.
"The markets had relied on expectations of monetary stimulus for a long time but that is changing with bond yields rising around the world. You have rising interest rates and falling EPS. That's obviously bad for stocks," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
The spectre of rising U.S. interest rates helped to lift the dollar's index against a basket of six major currencies to its highest in seven months.
The index stood at 97.644, after having risen to as high as 97.758 on Tuesday, climbing above its July peak of 97.569.
The euro dipped to a two-month low of $1.1032.
The Chinese yuan continued to wobble as the dollar firmed, slipping to a fresh six-year low of 6.7230 in early onshore trade before recouping losses.
The yen was little changed at 103.63 to the dollar.
The British pound jumped 1.2 percent in thin Asian trade to $1.2272, after having fallen nearly 5 percent in the previous four sessions.
Some market players suspected sterling benefited from a report by Bloomberg that British Prime Minister Theresa May has accepted that Parliament should be allowed to vote on her plan for taking Britain out of the European Union.
"The pound is being bought back after its big falls. But given that Brexit will remain a major theme for the markets, its likely to be capped," said Shinichiro Kadota, chief currency strategist at Barclays Securities Japan.
Oil prices inched up to stay near one-year highs hit earlier this week, with investors waiting for talks between OPEC producers and other oil exporters on curbing output to end a glut in the global market.
Brent crude futures traded in Asia at $52.66 per barrel, up 25 cents or 0.5 percent, edging closer to Monday's high of $53.73. (Editing by Shri Navaratnam and Kim Coghill)