By Sara Sjolin, MarketWatch
LONDON (MarketWatch) — European stock markets rebounded on Wednesday as investors waited to see if the U.S. Federal Reserve will announce a reduction in its monthly asset purchases.
The Stoxx Europe 600 index /zigman2/quotes/210599654/delayed XX:SXXP +0.46% gained 0.4% to close at 313.28, after ending down 0.5% on Tuesday.
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Banks helped lift the index, with Société Générale SA /zigman2/quotes/206663756/delayed FR:GLE +0.55% up 1.8% in Paris, Standard Chartered PLC /zigman2/quotes/200125072/delayed UK:STAN +0.85% rising 1.4% in London and Banco Santander SA /zigman2/quotes/205677933/delayed ES:SAN -0.95% /zigman2/quotes/202859081/composite SAN -0.26% 1.6% higher in Madrid.
Shares of Nokia Oyj /zigman2/quotes/207421390/composite NOK -1.18% rose 4.1% after Credit Suisse lifted its recommendation on the Finnish firm to outperform from neutral.
“We believe Nokia’s transformative deal with Microsoft /zigman2/quotes/207732364/composite MSFT -0.51% allows it to drive significant value creation from its vast patent portfolio,” the analysts said.
Shares of Smiths Group PLC /zigman2/quotes/208640940/delayed UK:SMIN +0.21% climbed 2.6% after the engineering company declared a special dividend for the full year.
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FOMC meeting in view
More broadly, investors in Europe waited for the U.S. Fed’s monetary policy announcement later in the day. Analysts expect the central bank to announce a reduction of $10 billion to $15 billion to its $85 billion-a-month bond-buying program at 2 p.m. Eastern Time, followed by Fed Chairman Ben Bernanke commenting on the decision at a news conference. Read: How stocks may react to the Federal Reserve decision
“With lower inflation and some soft housing data there is no rush to do any strong tapering. The Fed doesn’t want to make a policy mistake by tapering too aggressively,” said Mark Andersen, head of asset allocation at UBS.
Global stock markets climbed to multiyear highs in May on the back of aggressive easing from central banks globally, but were sent sharply lower when Fed Chairman Ben Bernanke started talking about scaling back the bank’s easing program. In recent months, however, markets have rebounded—with the Stoxx Europe 600 reaching a five-year high earlier in the week—as economic data point to gradual recovery.
“At the end of the day we come back to basics. How is the global economy doing? The U.S. looks fairly solid still, the U.K. is recovering beyond expectations, Europe is coming out of recession and China is stabilizing for now. This supports markets at a time where some monetary easing is being withdrawn in the U.S.,” Andersen said.
“We maintain our long positions in U.S. equities and U.S. high yield as a consequence,” he added.
Analysts at Daiwa Capital Markets said in a note, however, that Wednesday’s decision is far from clear-cut, attaching a 40% probability of no tapering.
“But with market expectations clearly slanted towards a first move from the Fed, and with several FOMC members clearly itching to get the process started, a move today on balance looks likely,” they said.
“Some are also looking for any tapering to be accompanied by a downward shift in the FOMC’s unemployment threshold to 6% from the current 6.5%, in an attempt to convince market participants that the [federal funds rate] will remain at its current level for longer,” the analysts added.
U.S. stocks traded lower on Wall Street.
On the data front in the U.S., U.S. Department of Commerce said construction on new homes inched 0.9% higher in August.
The U.K.’s FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX +0.20% closed 0.2% lower at 6,558.82, weighed by the benchmark’s mining firms as most metals prices moved lower. Shares of Rio Tinto PLC /zigman2/quotes/208934945/delayed UK:RIO +0.51% /zigman2/quotes/202627887/composite RIO +0.52% /zigman2/quotes/200083756/delayed AU:RIO -1.82% dropped 1.3% and BHP Billiton PLC /zigman2/quotes/208108397/composite BHP +1.41% /zigman2/quotes/201448516/delayed AU:BHP -2.16% fell 0.6%.
Minutes from the Bank of England’s September meeting showed the Monetary Policy Committee voted unanimously to keep both interest rates and the asset-purchase program unchanged.
HeidelbergCement AG /zigman2/quotes/202418791/delayed DE:HEI +0.19% climbed 1.4% after Goldman Sachs lifted the German firm to buy from sell, saying it has the most attractive long-term growth prospects versus its peers.
Siemens AG /zigman2/quotes/200873563/delayed DE:SIE +0.81% /zigman2/quotes/214908078/composite SI -1.66% picked up 1.3% after the industrial conglomerate said Ralf Thomas, a longtime Siemens veteran, will become chief finance officer with immediate effect.
Shares of Hochtief AG /zigman2/quotes/205338461/delayed DE:HOT +1.53% gave up 1.6% after Goldman Sachs cut the construction firm to neutral from buy.