Volkswacht Bodensee - European stocks advance as Fed looms, UK inflation dips

UK annual inflation struck an 18-month low in August, official data showed one day after news of a slowdown in the eurozone.

In reaction, the British pound slid to a four-month low at $1.2334 on speculation the Bank of England (BoE) could deliver one final hike -- or even pause policy when it announces its latest decision on Thursday.

The dollar rose against the yen but fell versus the euro, with the Fed forecast to pause its rate-hike campaign Wednesday and provide crucial clues on the outlook.

Oil prices slid on profit-taking after bumper gains the day before, when prices spiked toward $100 per barrel on recent output cutbacks announced by major producers Saudi Arabia and Russia.

- 'Apprehension' -

"Weaker inflation fuels the argument that interest rates no longer need to go up, or at least not by much more," said AJ Bell investment director Russ Mould.

The Fed is widely expected to keep US rates on hold later Wednesday, but focus will be on the bank's accompanying statement and boss Jerome Powell's post-meeting comments.

US inflation has dropped from the eye-watering levels seen in the middle of last year.

Yet this week's spike in oil prices has caused a headache for central bank policymakers as they try to bring prices under control.

"There is still some apprehension as it's still not clear what signals the Fed will send," OANDA Craig Erlam told AFP.

- Japan rate hint -

As well as the Fed and BoE, traders will be keeping an eye on policy decisions by central banks in Switzerland, Sweden and Norway due Thursday.

The Bank of Japan is also in focus, with officials in Tokyo recently hinting it could begin drifting away from its long-running policy of not raising interest rates.

Pressure has been building on officials to act as the yen continues to weaken and inflation pushes higher.

- Key figures around 1045 GMT -

London - FTSE 100: UP 0.7 percent at 7,711.86 points

Frankfurt - DAX: UP 0.6 percent at 15,763.85

Paris - CAC 40: UP 0.3 percent at 7,306.43

EURO STOXX 50: UP 0.5 percent at 4,264.99

Tokyo - Nikkei 225: DOWN 0.7 percent at 33,023.78 (close)

Hong Kong - Hang Seng Index: DOWN 0.6 percent at 17,885.60 (close)

Shanghai - Composite: DOWN 0.5 percent at 3,108.57 (close)

New York - Dow: DOWN 0.3 percent at 34,517.73 (close)

Euro/dollar: UP at $1.0697 from $1.0692 on Tuesday

Pound/dollar: DOWN at $1.2369 from $1.2383

Dollar/yen: UP at 148.04 yen from 147.61 yen

Euro/pound: UP at 86.48 pence from 86.34 pence

Brent North Sea crude: DOWN 1.3 percent at $93.15 per barrel

West Texas Intermediate: DOWN 1.2 percent at $90.07 per barrel

burs-rfj/bcp/lth

S.Spengler--VB