Volkswacht Bodensee - Stock markets mark time before crucial Fed rate call

Trader caution followed a relief rally this week after financial authorities moved to prevent contagion in the banking system in the wake of the collapse of three US regional lenders this month.

Investors were waiting to see if the Fed will continue its rate-hike campaign against inflation later on Wednesday or possible pause.

The market has largely priced in a quarter percentage point hike.

"There isn't a fear of that rate hike, however, because market participants also think it will be one of the last ones in the Fed's tightening cycle before giving way to at least two rate cuts in the second half of the year," said market analyst Patrick O'Hare at Briefing.com.

"Some have been prone to suggest a rate hike today can be labeled a 'dovish hike,' thinking that the Fed -- should it in fact raise rates today -- will convey a desire to pause its rate hikes to allow time to assess the impact of the banking issues," he added.

Michael Hewson, chief market analyst at CMC Markets, noted that "sentiment is increasingly fragile" ahead of the Fed announcement.

A quarter-point increase would be in line with the size of the US central bank's previous rate hike in February, and mark the ninth increase since it began tightening monetary conditions last year.

The Dow, the S&P 500 and the tech-heavy Nasdaq were all down slightly more than three hours into trading on Wall Street.

London, Paris and Frankfurt finished barely in the green, days after troubled Swiss banking giant Credit Suisse was swallowed up by UBS.

With tensions in the banking sector blamed on steep hikes in borrowing costs over the past year, pressure is building on central banks to pause their monetary tightening campaign.

Stephen Innes, managing partner at SPI Asset Management, said the markets are also looking at a quarter-point hike as a message of reassurance by policymakers about the banking sector.

"The fact that they may feel obliged to hike to convince the market that everything is fine in the banking sector is a considerable problem," said Innes.

"They are making a mistake if they don't pause to allow time to figure this out," he added.

- 'Downside risks' -

US Treasury Secretary Janet Yellen on Tuesday reiterated support for troubled lenders in the world's biggest economy.

The downing of Silicon Valley Bank and Signature Bank forced authorities to promise customers would not lose their cash, a move aimed at preventing a run on other firms.

The Fed and other major central banks have also moved to improve lenders' access to liquidity.

"The reassurances and stability measures provided by authorities in recent days appear to be having an enduring positive effect," noted National Australia Bank analyst Rodrigo Catril.

European Central Bank chief Christine Lagarde on Wednesday said recent financial turbulence could add to "downside risks" in the eurozone but did not commit to further interest rate hikes for the eurozone.

- Key figures around 1640 GMT -

New York - Dow: DOWN 0.3 percent at 32,477.86

London - FTSE 100: UP 0.4 percent at 7,566.84 points (close)

Frankfurt - DAX: UP 0.1 percent at 15,216.19 (close)

Paris - CAC 40: UP 0.3 percent at 7,131.12 (close)

EURO STOXX 50: UP 0.3 percent at 4,195.21

Tokyo - Nikkei 225: UP 1.9 percent at 27,466.61 (close)

Hong Kong - Hang Seng Index: UP 1.7 percent at 19,591.43 (close)

Shanghai - Composite: UP 0.3 percent at 3,265.75 (close)

Euro/dollar: UP at $1.0789 from $1.0772 on Tuesday

Pound/dollar: UP at $1.2230 from $1.2218

Euro/pound: UP at 88.22 pence from 88.13 pence

Dollar/yen: UP at 132.67 yen from 132.54 yen

West Texas Intermediate: UP 0.4 percent at $69.94 per barrel

Brent North Sea crude: UP 0.5 percent at $75.71 per barrel

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K.Brown--BTB