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 The Fed kicks off a two-day meeting later with markets betting on an
announcement that it will stop its post-financial crisis
high-intensity asset buying and reinforce that a softly-softly
approach will be taken to raising rates.
With the euro zone running into turbulence again and China's giant
economy also struggling for pace, the prospect of a world without
U.S. stimulus has troubled markets over the last couple of months,
but they finally seem to be getting used to the idea.
European shares rose for the fourth time is six days, helped by
better-than-expected results from pharmaceutical group Novartis and
Swiss bank UBS, while the dollar, commodity markets and U.S. bond
yields steadied.
"I think in the last few days we have had a reality check," fund
management group Hermes' chief economist, Neil Williams, said. "The
world is certainly not a happy place at the moment but it hasn't got
that much worse in recent weeks."
"I'm expecting the Fed to re-assert its dovishness, they haven't
come this far including six years of QE (quantitative easing) to end
it abruptly and leap towards a rate hike."
London's FTSE <.FTSE>, Germany's DAX <.GDAXI> and France's CAC <.FCHI>
were up 0.5, 1.2 and 0.4 percent respectively and the euro <EUR=>,
the pound <GBP=> and benchmark German government bonds <DE10YT=TWEB>
all traded around recent levels.
Gold <XAU=> also recovered its footing after falling to its lowest
in nearly two weeks, while emerging market stocks <.MSCIEF>, which
are also seen as vulnerable from reduced U.S. and global stimulus,
rose 0.7 percent as hopes of more reforms of state-owned business
saw Chinese stocks jump 2 percent.
CROWN SLIPS
Sweden's crown slid to a four-year low against the dollar and a
four-month trough against the euro after the country's central bank,
the Riksbank, surprised markets with a cut in interest rates to
zero.
Most analysts had forecast that the bank would lower its main
interest rate, the repo rate, to 0.1 percent from 0.25 percent to
fight the risk of deflation. But it went a step further and forecast
an even lower rate path for the future.
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"Reading between the lines, it looks like Riksbank will keep rates
low... This will weigh on the Swedish crown, with most losses likely
to come against the dollar," SEB's chief currency strategist in
Stockholm, Carl Hammer, said.
In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan
added about 0.4 percent but Japan's Nikkei dropped 0.4 percent after
disappointing results from Canon offset positive retail sales
data.
In the United States, data on Monday had been far from encouraging.
Services sector activity slowed in October to a six-month low, while
manufacturing output in Texas decreased, providing more evidence
that the Fed is likely to take things slowly in the coming months.
The dollar index, which tracks the U.S. unit against six major
rivals, inched up about 0.15 percent in Europe to 85.629 as early
Wall Street futures prices pointed to a solid 0.4-0.5 gain for
stocks later.
Among commodities, U.S. crude was flat at $81.04 per barrel after
dropping as low as $79.44 on Monday, its lowest level since June
2012, after Goldman Sachs cut price forecasts.
Brent crude shed 0.2 percent to $85.65, as concerns about weak
global demand and ample supply kept a cloud over the market though
growth-attuned metals -- copper, nickel and aluminium -- continued
their recent rebound.
(Editing by Louise Ireland)
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