Europe markets edge higher in cautious trade before Fed

Traders work at their desks in front of the German share price index DAX board at the stock exchange in Frankfurt. The benchmark gained 0.2% yesterday.AFPLondonEuropean stock markets rose cautiously yesterday, in tandem with their US counterpart, with the Federal Reserve poised to announce a first US interest rate hike in nearly a decade. The US central bank was widely expected to raise borrowing costs at its policy meeting, ending months of speculation and uncertainty on global markets. At the close in London, the benchmark FTSE 100 index had added 0.7% while Frankfurt and Paris rose by 0.2%, all three off session highs of nearer 1.0%. Wall Street was also up, but barely, more than two hours after the opening bell. British traders responded modestly to official data showing a further drop in British unemployment as half a million jobs were created in the three months to October for a highest on record employment rate of 73.9%. The euro meanwhile recovered to $1.0934 in foreign exchange trading. On the Wall Street around 1700 GMT, the Dow Jones Industrial Average stood at 17,532.52, up 0.04% while the broad-based S&P 500 and the tech-rich Nasdaq Composite Index boasted similarly minuscule gains. “Europe is up but volumes are light ahead of the biggest few hours in the markets for a number of years,” said James Hughes of GKFX. He added that “indications on the Fed Funds rate show that we are looking at an 85% probability of a 25 basis point (rise), a move that if true will leave the markets satisfied.”If anything were to derail the Fed later it would be the emerging markets problem, that if anything has worsened since the September meeting.” European equities had rallied on Tuesday, helped by steadier oil prices and rising German investor sentiment on a day when Frankfurt and Paris added more than 3.0%. In a volatile trading week, Europe’s main markets had fallen heavily on Monday, with London hitting a 2012 low on jitters over collapsing oil prices and the anticipated increase in US interest rates. “It is very likely that the impact of the Federal Reserve meeting will live up to the hype,” said ADS Securities market strategist Nour al-Hammoury. “No matter what the decision, traders need to be prepared for short-term volatility across all markets... If the hike goes ahead traders will expect a sharp rally in the dollar.” The case for an increase in US rates has grown stronger over the past year as the world’s biggest economy is enjoying a healthy recovery. The argument was reinforced on Tuesday by data showing year-on-year consumer inflation hit two% in November, matching the Fed’s target rate. The Fed’s policy body, the Federal Open Market Committee, began meeting on Tuesday to weigh raising the fed funds rate—a short-term peg for interbank lending which influences rates throughout the financial system—from 0-0.25% to an expected 0.25%-0.50%. The rate was pulled down to zero in an unprecedented series of very sharp cuts in 2008 as the economy sank into a deep recession. And it has not budged since then, as the climb back to firm growth has been much slower than expected.