EUROPE MARKETS: European Stocks Drop With Fed Update In Sight

By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- European stock markets moved lower in choppy action on Wednesday, as investors remained cautious ahead of the much-anticipated monetary-policy decision from the U.S. Federal Reserve.

"Markets are clearly in wait-and-see mode and won't be moving much until we get the Fed statement," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.

"Investors don't want to take too big positions ahead of this because it will happen during U.S. trading hours. That makes it difficult to trade and explains why markets have been flat for most of the day," he added.

The Stoxx Europe 600 index ended the session 0.2% lower at 292.36, after swinging between small gains and losses for most of the day.

The index has lost 5.3% over the past month on concerns the Federal Reserve will start scaling back its asset purchases if data continue to improve.

"Normally the Fed is careful not to spook the markets, so I think Bernanke will try to take away some of the uncertainty, while also keeping some flexibility for adjusting monetary policy," said Gijsels.

Among notable movers in the pan-European index, shares of Nordea Bank AB gave up 4.7% to 75.05 Swedish kronor ($11.74) after the Swedish government sold 260 million ordinary Nordea shares at 75 kronor. The sale reduced the government's share holding in the bank to 7% from 13.4%.

Shares of Aggreko PLC dropped 5.3% after UBS cut the temporary-power products firm to neutral from buy.

All eyes on Fed

For most investors, however, the focus was firmly on the U.S. Fed's policy meeting later in the day. A statement is expected after the European markets close, followed by a news conference by Chairman Ben Bernanke, where market participants will be looking for any hints about tapering the bank's quantitative-easing program. Read: How to trade the Federal Reserve decision

After a strong spring-rally boosted by central bank liquidity, markets started selling off in late May on worries the U.S. central bank will soon scale back its aggressive easing program.

"Today could dictate the rest of the summer and decide whether it will be one of very short or long nights for markets. The reality is that not much has changed data-wise since Bernanke's [Joint Economic Committee] testimony on May 22, and therefore he has an opportunity to say that the Fed are still data-dependent and leaving no set timetable for tapering," said analysts at Deutsche Bank in a note.

"However, we have to acknowledge that the minutes to the May 1st meeting were on the hawkish side and there are those in the Fed that want to start to pull back from the current levels of stimulus. Our best guess is that the FOMC statement will actually be pretty similar to the last one but that the Q&A will be where all the fun will start," they added. Read: 7 charts that tell the Fed not to taper QE3

U.S. stocks traded lower on Wall Street.

Movers

Back in Europe, shares of Alcatel-Lucent jumped 6.2% after the telecoms-equipment firm announced a cost-cutting plan aimed at trimming 1 billion euros ($1.34 billion) and selling at least EUR1 billion of assets by 2015.

France's CAC 40 index , however, dropped 0.6% to 3,839.34. Shares of oil giant Total SA (TOT) fell 0.6%, tracking oil prices lower.

Germany's DAX 30 index gave up 0.4% to 8,197.08.

The U.K.'s FTSE 100 index lost 0.4% to 6,348.82.

Shares of BT Group PLC dropped 1.8% after the telecom firm said Chief Executive Ian Livingston will take up the role as U.K. Minister of Trade and Investment in September. BT Group named Gavin Patterson as the successor.

Also of interest in the U.K., minutes from the Bank of England's June meeting showed the rate-setting committee voted unanimously to keep interest rates unchanged at a record low 0.5%, while three out of the nine members voted in favor of increasing the bank's asset purchases.

Outside the major index, shares of Konecranes Oyj slid 6.7% after the industrial crane firm lowered its full-year outlook.

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