Stocks largely up ahead of Fed meeting

By PAN PYLAS,Associated Press Updated at 2012-08-01 16:01:47 +0000


LONDON (AP) — Stocks recovered their poise Wednesday as investors awaited the Federal Reserve's latest policy statement and an announcement from the European Central Bank as to how it plans to combat Europe's debt crisis.

The consensus in the markets is that the Fed won't do anything dramatic despite mounting signs of a sharp slowdown in the U.S. economy. The closely-watched monthly manufacturing survey from the Institute for Supply Management suggested the sector is contracting. Though its main index rose to 49.7 to 49.8, the index remains below the 50 threshold. Anything below indicates output is falling.

Despite the seemingly deteriorating backdrop, most analysts think the Fed will wait for more evidence to enact another monetary stimulus, though most analysts think it will reiterate that its Fed funds rate, its benchmark interest rate, will remain low until late 2014.

Neil MacKinnon, global macro strategist at VTB Capital, said another monetary stimulus from the Fed could be on the cards if Friday's U.S. nonfarm payrolls data disappoint once again.

"Much will depend on the outcome of Friday's jobs report," he said.

By midafternoon London time, Germany's DAX was 0.1 percent lower at 6,764 but the CAC-40 in France rose 0.8 percent to 3,318. The FTSE 100 index of leading British shares was 1 percent higher at 5,691.

The euro was relatively steady too, trading 0.2 percent higher at $1.2312.

In the U.S., the Dow Jones industrial average was 0.1 percent higher at 13,016 but the broader S&P 500 index fell 0.1 percent at 1,378.

The Fed statement later is likely to be a prelude to what the European Central Bank does Thursday at its monthly policy meeting. Hopes remain that the ECB will back new measures powerful enough to battle Europe's debt crisis.

European Central Bank chief Mario Draghi vowed last Thursday to do what it takes to keep save the euro, and many expect the bank at the very least to resume its bond-buying program to keep a lid on Spain's and Italy's borrowing rates.

His comments sparked a bout of euphoria in the markets, which has largely lost its steam ahead of Thursday's meeting. On Tuesday, stocks suffered a mild reverse as investors fretted that any remedial measures won't be enough.

Draghi's statement of intent came at a particularly important time as Spain's borrowing costs surged to dangerous levels, raising the risk that one of Europe's biggest economies will need a bailout that would strain the euro currency union's finances.

Spain's borrowing rates remain high, certainly in comparison with strong euro economies like Germany. However, they are at manageable rates for now, below 7 percent. Anything above that rate is thought unsustainable in the long-run.

However, many in the markets a concerned that, as so often before in the debt crisis, the risk is that Europe's leaders overpromise and under-deliver.

Jens Weidmann, a leading ECB policymaker through his position as president of the Bundesbank, Germany's national bank, doesn't appear to be convinced that bond-buying is the right strategy. He continues to caution the ECB not to overstep its mandate of fighting inflation.

"The sniping from the Bundesbank must be deeply irritating for Mario Draghi," said Louise Cooper, markets analyst at BGC Partners. "However, so far he has ignored the pressure — he clearly realises the need for the ECB to take action."

Earlier Asian stocks suffered a reverse after four days of gains as China's manufacturing slowed despite government stimulus efforts

China's manufacturing remained weak in July, according to surveys released Wednesday, and analysts said weakening export demand pointed to the need for more efforts to revive growth in the world's second-biggest economy.

The state-affiliated China Federation of Logistics and Purchasing said its purchasing managers' index, or PMI, fell 0.1 percentage point to 50.1 in July, the slowest growth in eight months and just above the 50 level signifying expansion.

Japan's Nikkei 225 stock average closed down 0.6 percent at 8,641.85 while Hong Kong's Hang Seng added 0.1 percent to 19,820.38. Australia's S&P/ASX 200 lost 0.2 percent to 4,262.80. South Korea's Kospi shed 0.1 percent to 1,879.93

In energy trading, benchmark crude for September delivery was up 62 cents at $88.68 a barrel in electronic trading on the New York Mercantile Exchange.