Major stock markets and the euro were treading water Wednesday as investors waited to see if the U.S. Federal Reserve would announce new stimulus measures to revive a flagging economy.
Signs that Europe's leaders were making progress on a long-term plan to resolve the continent's debt crisis also eased some pressure on Spanish and Italian government bonds.
The main focus for investors around the world, though, is the Fed, which is expected to announce an extension of its bond-buying program known as "Operation Twist" later today.
A slower pace of U.S. hiring and signs that Europe's nearly three-year-old debt crisis is depressing business activity have raised hopes of more help from the Fed.
"There is a pretty high level of uncertainty as to what they are going to do," said Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC in Albany, New York.
"The consensus is they are going to extend Operation Twist but it is by no means a certainty and everybody wants to wait and see what the decision is going to be."
That uncertainty caused U.S. stocks, which had racked up four days of gains coming into trade on Wednesday, to open slightly lower. The Dow Jones industrial average was down 13.85 points, or 0.11 percent, at 12,823.48. The Standard & Poor's 500 Index was down 2.05 points, or 0.15 percent, at 1,355.93. The Nasdaq Composite Index was down 3.46 points, or 0.12 percent, at 2,926.30.
Jeremy Stretch, head of currency strategy at CIBC World Markets, warned that markets could tumble if the Fed deviates from the script.
"There are expectations that the Fed will at least extend 'Twist' ... that is pretty much baked in," he said. "So there is a risk of disappointment if the Fed does not do anything."
The MSCI global equity index pared earlier gains and was last up 0.1 on the day while the FTSE Eurofirst 300 index of top European shares was unchanged after hitting a one-moth high in the previous session.
The 30-year benchmark U.S. Treasury bond was down 28/32 to yield 2.78 percent after starting the month at a low of 2.53 percent. The benchmark 10-year note was down 14/32, with the yield at 1.67 percent.
The pressure in sovereign debt markets was also easing on signs that euro zone leaders were making progress on easing an ongoing debt crisis.
At a Group of 20 meeting in Mexico they said they were aiming to hammer out a plan next week to integrate the region's banking sectors.
A banking union would be a major step, long pressed for by the United States and other nations, in breaking the cycle of debt-laden countries bailing out their troubled banks only to find themselves even deeper in debt.
A proposal to use the euro zone's new rescue fund, due to come into force next month, to buy the debt of stricken euro-zone countries like Spain and Italy was also to be discussed at a meeting of euro finance ministers on Thursday.
Spain's 10-year government bond yield, a gauge of the compensation investors demand to lend to the government, fell 27 basis points to 6.93 percent, with the equivalent Italian yield falling to 5.84 percent.
A report that some hedge funds are positioning for a big turnaround in the Bund market after yields reached record low levels added to selling in German bonds, pushing the 10-year yield up five basis points to 1.58 percent.
The euro rose fractionally to trade around $1.27, adding to gains of nearly 1 percent in the previous session and within sight of a one-month high of $1.2748 hit on Monday.
The euro also gained some support from reports that Greek conservatives had succeeded in forming a coalition government. It will now try to persuade foreign lenders to allow more leeway in pushing through a deeply unpopular austerity program.
The dollar, meanwhile, was weaker on expectations of more Fed easing, though some said that probably won't last.
"The weakness in the dollar is understandable but once that speculation is out of the way, and we know what the Fed is going to do, concerns about the euro zone will come back to the fore," said Simon Derrick, head of currency research at Bank of New York Mellon.
Commodities eye stimulus
Commodity markets were also watching for the outcome of the Fed meeting. Any stimulus could boost demand for a wide range of materials and enhance the role of precious metals as a hedge against inflation.
Spot gold fell $12.60, or 0.8 percent, to $1604.80 but remained not far from its 2012 high of around $1,790 set in February when the Fed said it would keep interest rates near zero until the end of 2014.
Brent crude prices were close to 17-month lows as investors focused on the dimming outlook for global fuel. U.S. July crude, which expires on Wednesday, dipped 50 cents to $83.53 per barrel.