* Federal Reserve policy meeting in focus
* World stocks down but Europe has mild gains
* Wall Street set for flat start
* Dollar slips
By Jeremy Gaunt, European Investment Correspondent
LONDON, Aug 12 (Reuters) - Uncertainty about the Federal
Reserve's view on the U.S. economy and another sharp fall in
Chinese stocks weighed on global equities on Wednesday although
Europe managed mild gains
Wall Street looked set for a flat to positive start and the
dollar slipped against major currencies.
The Fed finishes a two-day policy meeting later on
Wednesday, with expectations that it will leave benchmark
interest rates near zero and let a $300 billion quantitative
easing programme to buy Treasury securities expire on schedule
in September as economic gloom lifts.
But after a report showing U.S. firms continue to cut
inventories as they lack confidence in the economy, analysts
expect the Fed will try to dampen speculation about higher
interest rates while still supporting hopes that the makings of
a recovery are at hand. Its statement is due at about 1815 GMT.
The Bank of England, meanwhile, said inflation will be well
below the 2 percent target in two years if interest rates rise
in the first quarter, suggesting markets have been pricing in
rate increases too early. []
World stocks as measured by MSCI <.MIWD00000PUS> were down
0.2 percent with emerging market equities <.MSCIEF> dropping 1.2
percent.
"World share markets have been moving in tandem for a while
and there's growing concern that many have been overbought,
which may lead to a bit of adjustment after all the gains," said
Masayoshi Okamoto, head of dealing at Jujiya Securities in
Tokyo.
One area of concern was China, where Shanghai's bourse
<> dropped 4.7 percent. A similar tumble occurred at the
end of July and while Chinese stocks are notoriously volatile,
investors are nonetheless jittery about the market.
European shares fell in early trade on Wednesday but then
turned around on relatively good earnings reports.
E.ON <EONGn.DE>, the world's largest power generator,
reported earnings that beat market expectations, following
strong results from major European peers such as France's EDF
<EDF.PA> and Iberdrola <IBE.MC>. []
The pan-European FTSEurofirst 300 <> index of top
shares was up 0.2 percent. Earlier, Japan's Nikkei <>
closed down 1.4 percent.
DOLLAR SLIPS
The dollar steadied slipped against other major currencies
before the Fed's verdict.
"Unless the Fed delivers a markedly upbeat statement that
can bring forward tightening expectations, or starts to detail
exit strategy tools, it looks as though the dollar will struggle
to build on recent gains," said Chris Turner, head of FX
strategy at ING.
The euro was up 0.1 percent to $1.4163 after dipping to a
1-1/2 week low against the dollar of $1.4087 <EUR=>. The dollar
was down 0.2 percent at 95.75 yen after falling as low as 95.13
yen <JPY=>.
Euro zone government bonds were higher. Two-year yields
<EU2YT=RR> were 4 basis points lower at 1.448 percent, with
10-year yields <EU10YT=RR> off 3 basis points at 3.449 percent.
(To read Reuters Global Investing Blog click on
http://blogs.reuters.com/globalinvesting; for the MacroScope
Blog click on http://blogs.reuters.com/macroscope; for Hedge
Hub click on http://blogs.reuters.com/hedgehub)
