LONDON Jan 29 (Reuters) - European equity futures rose on Wednesday, after Turkey's decision to hike all its key interest rates to defend the country's crumbling currency helped buoy equity markets that had been hit over the last week from an emerging-market sell off.
The bank raised its overnight lending rate to 12 percent from 7.75 percent in a much sharper move than economists had forecast.
The euro zone's blue-chip Euro STOXX 50 futures contract was up by around 1 percent at 0720 GMT, Germany's DAX futures contract also advanced by 1 percent and France's CAC futures contract rose 0.9 percent.
"The Turkish central bank's bold decision to raise interest rates to 12 percent yesterday evening appears to have given the markets a significant boost over night," Alpari UK analyst Craig Erlam wrote in a note.
Alongside the move by the Turkish central bank, traders will be waiting for the outcome of a U.S. Federal Reserve meeting on Wednesday, with the U.S. central bank due to make a statement at 1900 GMT.
Turmoil in emerging markets and a month of disappointing job growth at home are unlikely to deter the Federal Reserve from trimming its bond-buying stimulus programme on Wednesday, as Ben Bernanke wraps up his last policy meeting at the helm of the U.S. central bank.
Overall signs of improvement in the U.S. economy suggest Fed officials will stay on track to cut monthly purchases of Treasuries and mortgage-backed securities by $5 billion each, bringing the total of their monthly asset purchases to $65 billion.
Turkey's decision to hike its interest rates lifted Asian equity markets, and traders expected European equities to follow suit. Investors said the action taken by Turkey could help stem a recent major sell-off in emerging markets.
Others were more cautious, arguing that the problems in emerging market economies such as Argentina, where the peso currency has dropped sharply, and Ukraine which faces widespread social unrest, were not over and that equity markets could remain volatile over the next few weeks.
"I'm a seller here. I don't think it's time to go long. I still think there's more of a clear-out to come," said Darren Courtney-Cook, head of trading at Central Markets Investment Management.
-------------------------------------------------------------------------- > GLOBAL MARKETS-Asia enjoys relief rally as Turkey takes bold step
> US STOCKS-Wall St rebounds with Pfizer and the Fed; Apple sinks > Nikkei jumps most in 5 months after Turkey rate hike > TREASURIES-Bond prices edge higher on weak US durable goods data > FOREX-Yen skids, Aussie rallies as Turkey delivers big rate hikes > PRECIOUS-Gold slips for third session, Fed policy meeting in focus > METALS-Copper edges up from 7-week low after Turkey rate hike > Brent holds above $107 ahead of U.S. Fed meet outcome
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