World stocks climb but caution ahead of Fed tempers rally

By Emelia Sithole-Matarise

LONDON (Reuters) - European equities advanced on Wednesday, spurred by strong corporate earnings and stabler Chinese markets, although moves were cautious in most financial assets before a policy decision from the U.S. Federal Reserve.

The rise in Europe and most Asian markets overnight looked set to extend to U.S. markets where stock index futures pointed to Wall Street edging up 0.2 percent.

Pledges from Chinese regulators to buy shares to stabilise stocks if needed and hints of more policy easing from the central bank helped soothe sentiment.

Against the calmer backdrop in financial markets, the pan-European FTSEurofirst 300 index rose 0.8 percent after carmaker Peugeot reported first-half net income for the first time in four years. Oil major Total posted higher-than-expected second-quarter profits.

"The results from European companies have been reasonably reassuring so far, although China is impacting a few of them," Mirabaud Securities' senior equity sales trader John Plassard said.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.4 percent.

Investors are also focused on the outcome of the Fed's two-day policy meeting, with markets divided on whether it will take a hawkish or dovish stance, while some suspect it might chose to do neither. No move on rates is expected this week.

In recent congressional testimony, Fed Chair Janet Yellen neither ruled out a September interest rate hike nor guided the market toward thinking it was a done deal.

The improved investor appetite for risk lifted U.S. and benchmark euro zone 10-year bond yields though the moves were modest before the Fed decision.

In currency markets, investors seemed to decide it was safer not to be actively short of the U.S. dollar ahead of the policy statement due at 1800 GMT. The dollar was flat against the euro at $1.1056 and up 0.1 percent at 123.71 yen. The moves were well within recent ranges in low trading volumes.

"In the near term there is caution caused by investor wariness in chasing any trends given we have the FOMC meeting ending today," Societe Generale FX strategist Alvin Tan said.

"If the Fed continues to be relatively neutral in its tone by not dropping any hints of an imminent rate hike probably markets will continue to stabilise," he said.

In energy markets, oil prices fell for a sixth day as concerns over global oversupply outweighed the impact of a what is likely to be a larger-than-expected draw on U.S. crude stocks.

Brent futures were down 21 cents at $53.09 a barrel and near their lowest since February. U.S. crude for September delivery slipped 26 cents to $47.72 a barrel.

(Additional reporting by Sudip Kar-Gupta; Editing by Louise Ireland/Hugh Lawson)