European stocks advance with all eyes on Fed
LONDON (AFP) - European equity markets climbed on Wednesday as investors awaited the outcome of the Federal Reserve's policy meeting which could trigger a scaling back of its huge US stimulus programme.
London's benchmark FTSE 100 index ended the day up 0.09 percent at 6,492.08 points.
Frankfurt's DAX 30 rose 1.06 percent to 9,181.75 points and the CAC 40 in Paris climbed 1.0 percent to 4,109.51 points.
With the Fed due to wrap up its two-day policy meeting at 1900 GMT, opinion is split on whether it will announce a cut in its $85 billion a month bond-buying scheme known as quantitative easing (QE).
"Recent economic data from the US has highlighted the recovery, but it still seems too soon to trim the stimulus package," said analyst David Madden at traders IG.
"The jobless rate in the US has only recently dipped to 7.0 percent, and could well be revised upward next month. So I think the US central bank will wait for further proof that the economy can withstand a reduction in the QE scheme."
While some analysts point to a string of figures that indicate a healthy pick-up in the US economy, boosting the argument for a slight reduction, others say the central bank will likely wait until early next year to see if the recovery can be sustained.
"Tonight's Fed announcement looms large across the markets," said analyst Alistair Cotton at traders Currencies Direct.
"The US central bank still retains its ability to surprise and there is still a good degree of uncertainty as to whether the pace of asset purchases will be slowed this month or if the Fed wait until early 2014."
The effects of the Fed decision are also open to debate, with some analysts predicting turbulence in the emerging markets if the taper were to begin now. Others believe any taper has already been priced in.
Last summer, currency values in emerging giants such as Brazil, India and Indonesia plummeted when the US Federal Reserve signalled a stimulus reduction could be in the cards.
US stocks were mixed ahead of the conclusion of the crucial policy meeting.
In midday trade, the Dow Jones Industrial Average rose 0.14 percent to 15,897.41.
The broad-based S&P 500 increased 0.10 percent to 1,779.23, while the tech-rich Nasdaq Composite Index fell 0.47 percent to 4,004.75
Ahead of the Fed announcement, sentiment was partly boosted by news of soaring German business confidence.
The Ifo economic institute's closely watched business climate index climbed to 109.5 points in December, which was the highest level since April 2012. The previous month, it had stood at 109.3 points.
In foreign exchange trading, the euro dipped to $1.3764 from $1.3765 late in New York on Tuesday.
Sterling was lifted by news that Britain's unemployment rate had hit a four-year low point.
The European single currency fell to 83.97 pence from 84.63 pence on Tuesday. The British pound rebounded to $1.6391 from $1.6264.
Official data showed that the British unemployment rate slid to 7.4 percent in the three months to October from 7.6 percent in the quarter ending in September.
"Sterling is stronger across the board as a natural reaction to the positive data. This is bringing expectations forward of a monetary policy tightening by the Bank of England," said ING strategist Chris Turner.
The British central bank has stated that it will not raise borrowing costs from a record-low 0.50 percent at least until the jobless rate falls to seven percent, under a "forward guidance" policy.
The price of gold dipped to $1,230.50 per ounce on the London Bullion Market from $1,231.75 on Tuesday.
