* All eyes on Fed decision later, statement at 1900 GMT
* European shares helped by solid German sentiment data
* Nikkei jumps 2 pct, yen under pressure
* Rupiah, peso, baht also hit but commodities steady
By Marc Jones
LONDON, Dec 18 Financial markets were cautious
on Wednesday as investors waited to see if the Federal Reserve
might announce it is trimming its massive stimulus programme.
European shares tiptoed higher, helped by a strong German
business sentiment survey, but it was little more than fine
tuning ahead of the Fed's statement. Moves in the dollar and
benchmark U.S. and European government bonds were also tight.
The debate over when the Fed will begin to halt the flow of
cheap dollars has dominated trading worldwide for months amid
worries it could trigger a turbulent reaction from investors who
have become all too used to the support.
A majority of economists polled by Reuters expect the Fed to
wait until March before it starts the process, but recent
encouraging data from the U.S. and other parts of the world have
raised the odds of a move in January, if not now.
"Probably the strongest encouragement for tapering to begin
this evening is the stability in financial markets," said Derek
Halpenny, European head of global markets research at Bank of
"Our hunch is that a taper announcement may well encourage a
year-end rally in global equity markets as an element of policy
uncertainty is cleared," he said, adding the dollar should also
do well against the yen.
Another Japanese trade deficit and expectations that Prime
Minister Shinzo Abe could hint at fresh stimulus in a speech
later was already tugging at the yen.
There was also no shortage of European distractions to fill
the wait for the Fed.
Euro zone watchers had details thrashed out overnight on the
bloc's new bank rescue mechanism to pick through, while German
Ifo data showed business morale in Europe's biggest economy hit
its highest level this month since April 2012, a sign that
economic growth could accelerate next year.
Bank of England meeting minutes due at 0930 GMT were also on
The pan-regional FTSEurofirst 300 extended gains to
0.8 percent after the German data. London's FTSE,
Paris's CAC 40 and Frankfurt's Dax all made
ground although the moves only reversed Tuesday's falls.
The euro was steady at $1.3767, having risen 0.2
percent in the previous two sessions. The common currency
touched a six-week high of $1.3811 on Dec. 11.
The Fed's stimulus campaign has been a major driver for
global risk assets in recent years.
The Federal Open Market Committee, the central bank's policy
setting group, will release a policy statement at 1900 GMT,
(1400 EST) followed by a press conference with Fed Chairman Ben
Bernanke a half hour later.
As the decision loomed, Indonesia's rupiah fell to a
five-year low of 12,175 per dollar, while the Philippine peso
dropped 0.3 percent to 44.13 to the dollar and the Thai
baht eased 0.5 percent to 32.25, a one-week low.
One of the results of the Fed's cheap money has been that
higher-yielding emerging market assets have been snapped up, a
trade likely to reverse to some degree as the central bank's
"We are bearish on those currencies held back by weak or
deteriorating current account positions, inflation challenges
and, in some cases, poor internal debt dynamics," Morgan Stanley
analysts wrote in a report.
The other standout move in Asia was in Tokyo where the
Nikkei climbed 2 percent as hedge funds bet that
whatever the Fed outcome was, it would have little impact on
Japan's ultra-loose policy path.
S&P 500 E-mini futures pointed to Wall Street opening
up around 0.3 percent later having dipped on Tuesday. And
with the Nikkei rallying, the dollar bounced 0.3 percent to
103.00 yen but was short of Friday's five-year high of 103.925
"We may see nothing at all from the Fed, although they would
give a strong indication a taper is on the cards. This is a
strong possibility as well, which could be USD negative," Chris
Weston at financial spreadbetter IG wrote in a note.
Among commodities, U.S. crude prices were steady at
$97.25 a barrel, recovering from the previous session's 0.3
percent decline as Brent dipped to $108.37.
Gold rose 0.3 percent to around $1,234 an ounce,
having fallen 0.8 percent overnight. The precious metal has
fallen more than 26 percent in 2013, heading for its worst year