Volkswacht Bodensee - Markets rally before Fed, China zero-Covid hopes boost Hong Kong

The Fed is widely expected Wednesday to announce a fourth straight 75-basis-point rate hike as it tries to rein in runaway prices, which has led to worries it will tip the world's top economy into recession, sending stocks tumbling.

But a recent report suggesting officials are looking to dial down the pace of increases has sparked a rally in risk assets over the past week -- helped by signs other central banks are also trying to take a step back.

- Waiting game -

"The waiting game for the Fed is still on, with investors largely in the dark until the US central bank illuminates the path ahead for interest rate rises tomorrow," said Hargreaves Lansdown analyst Susannah Streeter.

"In the interim they have been feeling their way to a more optimistic attitude, hopeful that economic indicators hinting that inflationary pressures are beginning to subside could lead to a softening in monetary policy."

In Asia, Hong Kong led the rally following unconfirmed posts on Chinese social media saying officials were putting together a committee to discuss how to move the country away from its economically damaging zero-Covid policy.

Shares jumped more than five percent after the appearance of the unverified document, which ramped up hopes that the world's number two economy could begin opening up again in the new year and ease the strict containment measures that have hammered productivity and markets.

However, neither Chinese state media nor government officials have suggested that the meeting actually took place, or that such a committee was established, raising questions about the veracity of the statement.

Nonetheless, Shanghai climbed more than two percent, while the yuan also rallied after recently falling to record lows against the dollar.

Sydney was also well up after the Australian central bank lifted rates by 0.25 percentage points to a near-decade high but brushed off calls for a bigger raise, surging despite inflation.

- Key figures around 1000 GMT -

London - FTSE 100: UP 1.4 percent at 7,196.72 points

Frankfurt - DAX: UP 1.0 percent at 13,383.85

Paris - CAC 40: UP 1.6 percent at 6,368.85

EURO STOXX 50: UP 1.4 percent at 3,666.35

Tokyo - Nikkei 225: UP 0.3 percent at 27,678.92 (close)

Hong Kong - Hang Seng Index: UP 5.2 percent at 15,455.27 (close)

Shanghai - Composite: UP 2.6 percent at 2,969.20 (close)

New York - Dow: DOWN 0.4 percent at 32,732.95 (close)

Euro/dollar: UP at $0.9934 from $0.9885 on Monday

Pound/dollar: UP at $1.1536 from $1.1465

Dollar/yen: DOWN at 147.41 yen from 148.72 yen

Euro/pound: DOWN at 86.12 pence from 86.20 pence

West Texas Intermediate: UP 1.3 percent at $87.65 per barrel

Brent North Sea crude: UP 1.4 percent at $94.13 per barrel

L.Janezki--BTB