By Marc Jones
LONDON (Reuters) - Global markets mostly stuck to tight ranges on Tuesday, with uncertainty about the future of the U.S. monetary stimulus programme keeping investors on edge as the Federal Reserve prepared to meet.
The U.S. central bank kicks off a two-day meeting later in the day and markets are on alert for guidance on when and how quickly it will look to wind down its bond buying programme.
After a calmer session for Asian markets, European shares recovered from an early dip to stand almost unchanged on the day by late morning, while U.S. futures pointed to a low-key start for Wall Street.
The pickup in European shares was aided by a rise in investor sentiment in Germany, suggesting Europe's largest economy is on the slow road to recovery, but it was only a brief distraction ahead of the Fed.
The meeting has taken on greater significance since its Chairman Ben Bernanke said in May the Fed could scale down its stimulus if the U.S. economy gains momentum, comments which have brought this year's market rally to a shuddering halt.
"I don't think we will get any great retreat from the expectation that tapering (slowing of bond purchases) is really quite imminent," said Nick Beecroft senior market analyst at Saxo Bank.
"I think the Fed is secretly sitting with its fingers crossed, hoping that the froth continues to be skimmed off asset markets. I don't think they will be bothered at all if the S&P500 or other risk markets fall 5 or 10 percent, as long as it didn't happen in a (single) day."
'STEERING' ECB
The dollar was firmer against the yen, hovering above a two-month low against Japanese currency, although it was slightly down against other majors including the euro.
Markets focused on comments from European Central Bank chief Mario Draghi that calmer conditions in the euro zone meant monetary policy had regained its "steering capacity" again.
Speaking in Israel, he also said the bank remained ready to cut rates again if needed and kept the door open to the idea of charging on deposits parked with it by banks.
DAY AT THE ZEW
In the debt markets, German Bund futures dipped in line with U.S. Treasuries on the expectations the Fed may signal it is moving closer to trimming its bond purchases.
Germany's ZEW business sentiment survey, as expected, showed an uptick in the mood in Germany, though its impact was limited coming a day after the Bundesbank said it expected a summer slowdown.
Also underscoring the wider regional malaise, figures showed car sales in Europe plunged to the lowest level in two decades last month.
"The ZEW index has moved more or less sideways since spring. Analysts still expect that the economy will recover. But I don't see a real breakthrough for broadly-based optimism," said Ralph Solveen at Commerzbank.
The nervousness ahead of the Fed meeting restricted growth-linked metals like copper as well as safe-haven and inflation-linked assets such as gold to minor moves.
Brent crude was also barely changed around $105, holding near a 10-week high, as fears that the tensions in Syria could spark conflict in more oil-rich parts of the region provided a prop for the otherwise Fed-focused market.
"The market has certainly built in a risk premium (from Syria) into prices, and this should keep it supported despite fundamentals suggesting that there is more than enough oil out there to buffer a disruption," said Carl Larry of Oil Outlooks and Opinions.
(Reporting by Marc Jones; Editing by John Stonestreet)
