GLOBAL MARKETS-Dollar, shares subdued as Fed keeps markets on edge

Tue Jun 18, 2013 6:18am EDT

* European shares reverse early dip, Nikkei ends down 0.2
pct
    * Dollar rises vs yen, choppy against basket of key
currencies
    * Oil eases off 10-week high, gold falls
    * German ZEW survey a brief distraction ahead of Fed

    By Marc Jones
    LONDON, June 18 (Reuters) - Global markets mostly stuck to
tight ranges on Tuesday, with uncertainty about the future of
the U.S. monetary stimulus programme keeping investors on edge
as the Federal Reserve prepared to meet.
    The U.S. central bank kicks off a two-day meeting later in
the day and markets are on alert for guidance on when and how
quickly it will look to wind down its bond buying programme.
    After a calmer session for Asian markets, European shares
 recovered from an early dip to stand almost unchanged
on the day by late morning, while U.S. futures  
pointed to a low-key start for Wall Street.
    The pickup in European shares was aided by a rise in
investor sentiment in Germany, suggesting Europe's largest
economy is on the slow road to recovery, but it was only a brief
distraction ahead of the Fed. 
    The meeting has taken on greater significance since its
Chairman Ben Bernanke said in May the Fed could scale down its
stimulus if the U.S. economy gains momentum, comments which have
brought this year's market rally to a shuddering halt.
    "I don't think we will get any great retreat from the
expectation that tapering (slowing of bond purchases) is really
quite imminent," said Nick Beecroft senior market analyst at
Saxo Bank. 
    "I think the Fed is secretly sitting with its fingers
crossed, hoping that the froth continues to be skimmed off asset
markets. I don't think they will be bothered at all if the
S&P500 or other risk markets fall 5 or 10 percent, as long as it
didn't happen in a (single) day."
    
    'STEERING' ECB
    The dollar was firmer against the yen, hovering above
a two-month low against Japanese currency, although it was
slightly down against other majors including the euro. 
    Markets focused on comments from European Central Bank chief
Mario Draghi that calmer conditions in the euro zone meant
monetary policy had regained its "steering capacity" again.
 
    Speaking in Israel, he also said the bank remained ready to
cut rates again if needed and kept the door open to the idea of
charging on deposits parked with it by banks.
   
    
    DAY AT THE ZEW
    In the debt markets, German Bund futures dipped in
line with U.S. Treasuries on the expectations the Fed may signal
it is moving closer to trimming its bond purchases. 
    Germany's ZEW business sentiment survey, as expected, showed
an uptick in the mood in Germany, though its impact was limited
coming a day after the Bundesbank said it expected a summer
slowdown. 
    Also underscoring the wider regional malaise, figures showed
car sales in Europe plunged to the lowest level in two decades
last month. 
    "The ZEW index has moved more or less sideways since spring.
Analysts still expect that the economy will recover. But I don't
see a real breakthrough for broadly-based optimism," said Ralph
Solveen at Commerzbank.    
    The nervousness ahead of the Fed meeting restricted
growth-linked metals like copper as well as safe-haven
and inflation-linked assets such as gold to minor moves.
    Brent crude was also barely changed around $105,
holding near a 10-week high, as fears that the tensions in Syria
could spark conflict in more oil-rich parts of the region
provided a prop for the otherwise Fed-focused market.
    "The market has certainly built in a risk premium (from
Syria) into prices, and this should keep it supported despite
fundamentals suggesting that there is more than enough oil out
there to buffer a disruption," said Carl Larry of Oil Outlooks
and Opinions.