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European stocks steady, euro rises before Fed outcome

Possibility that the US Federal Reserve will announce plans for more stimulus helps boost the European currency

AFP, Wednesday 20 Jun 2012
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Europe's main stock market were narrowly mixed on Wednesday amid prospects that the Federal Reserve would announce plans for more stimulus to boost the world's biggest economy.

The European single currency meanwhile rose versus the dollar as traders also digested the outcome of a G20 summit aimed at stamping out fires caused by the eurozone crisis.

Approaching midday in London, the benchmark FTSE 100 index of leading companies was up 0.16 per cent at 5,595.41 points.

Frankfurt's DAX 30 climbed 0.14 percent to 6,372.28 points and in Paris the CAC 40 fell 0.27 per cent to 3,109.57.

In foreign exchange deals, the euro rose to $1.2696 from $1.2686 late on Tuesday in New York.

Investors were treading carefully, "lest they are caught out this evening by a Fed statement that confounds expectations," said Chris Beauchamp, a market analyst at IG Index trading group.

All eyes were on Washington, where the Fed was to wrap up a two-day meeting that many expect to end with a fresh injection of capital to shore up the sputtering US economic recovery as jobs growth slows.

Some economists said policymakers could use a third round of asset purchases known as quantitative easing (QE3) or use other tools at their disposal.

Recent comments from central bank officials have offered mixed signals about what actions they might take, while Fed Chairman Ben Bernanke kept his cards close to his chest in his latest testimony to Congress.

"As the global economy teeters on the brink, and the eurozone crisis festers away in the background, the hope for many is that ... Ben (Bernanke) and his band of policymakers at the Fed will unleash a new round of stimulus, or at the very least tweak the language of their statement to make it more accommodative," said Beauchamp.

"We had an appetiser this morning to the Fed meeting, when the Bank of England published the minutes of its latest policy meeting."

It was revealed on Wednesday that Bank of England policymakers narrowly voted against pumping Britain's recession-hit economy with more new cash under its own QE programme, when it held a meeting in early June.

BoE Governor Mervyn King and three other central bank members voted for more stimulus -- up to a total of £50 billion (62 billion euros, $79 billion) -- but they were out-numbered by five policymakers wishing to sit tight.

European Unions leaders were gearing up for more meetings in their battle to save the eurozone, promising their G20 partners they would integrate their banking sector and restart growth.

Backed by key EU members including Germany, France and Britain, the pledges came on Tuesday at the end of two days of talks between the Group of 20 powers in the Mexican beach resort of Los Cabos, during which leaders from outside Europe demanded they take firm and quick action.

"In Los Cabos the seeds of a pan-European recovery plan were planted," said IMF managing director Christine Lagarde, looking forward to next week's European summit, when a more concrete action plan was expected to emerge.

US President Barack Obama spoke for many of his colleagues when he expressed relief at Europe's "heightened" urgency, adding: "I am confident that over the next several weeks, Europe will paint a picture of where we need to go."

In their joint statement, the G20 leaders vowed to "take the necessary actions to strengthen global growth and restore confidence."

The meeting looked to calm markets that have been rattled by Europe's struggling banking system, especially that of Spain, which this month was promised up to 100 billion euros ($125 billion) to help troubled lenders.

It also took place against a backdrop of soaring borrowing costs for Madrid, which saw the yield on its 10-year bonds hit a record 7.13 per cent on Monday -- a level considered unsustainable.

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