(Refiles to correct to Tuesday in 1st paragraph)
By Jeremy Gaunt, European Investment Correspondent
LONDON, Dec 16 (Reuters) - Volatility spread across stock
and foreign exchange markets on Tuesday as investors eyed a
Federal Reserve meeting expected to cut interest rates and hint
at future unorthodox monetary policies to lift the U.S. economy.
European stocks reversed early losses to put in solid gains
after better-than-expected euro zone manufacturing data. The
dollar firmed against the euro after earlier hitting a two-month
low.
Oil was trading below $45 but was supported by expectations
that OPEC will agree its largest supply cut ever later in the
week.
The Fed is widely expected to cut interest rates to just 0.5
percent or lower. Futures markets are setting a two-thirds
possibility of a 75 basis points cut to 0.25 percent <FEDWATCH>.
With rates approaching zero, market players are now looking
for clarity on what policy measures the Fed will consider using,
such as outright purchases of financial assets, to help pull the
economy out of a sharp recession.
Buying Treasury bonds, for example, would drive down yields
even further.
"While an additional rate cut by the U.S. Fed is widely
expected, market reaction to the cut is still very much
uncertain, as another rate cut means the Fed is left with one
less card to offer," said Lim Tae-gun, a market analyst at
Daewoo Securities in Seoul.
Equity markets were mixed, with MSCI's main stock index
<.MIWD00000PUS> struggling to stay in positive territory for the
month. Such a gain would be the first since May for the index,
which is down more than 45 percent this year.
The pan-European FTSEurofirst 300 <> was up 0.8
percent after earlier been negative.
Euro zone manufacturing and services activity deteriorated
by less than forecast in December, although both showed the
economy to be contracting.
Earlier, Japan's Nikkei average <> closed down 1.12
percent.
In company news later in the day, Goldman Sachs <GS.N> is
expected to report a quarterly loss of as much as $2.5 billion,
hit by the falling value of many of its investments.
OPEC TO CUT
Oil steadied after dropping 4 percent on Monday on
persistent worries of a deepening economic slump. The weaker
dollar, which tends to support commodities, also lent a hand.
U.S. light crude for January delivery <CLc1> was slightly
higher at $44.78 a barrel.
Oil dropped to a four-year low of $40.50 on Dec. 5 -- more
than a $100 slide from its July all-time high -- as global
economic turmoil depresses demand in large consumer nations such
as the United States and Japan.
"OPEC could achieve limited success on Wednesday. They might
do enough to stop prices from sliding further," said UBS
economist Jan Stuart.
In an attempt to build a floor under prices, Organization of
Petroleum Exporting Countries ministers, who meet on Wednesday
in Algeria, are calling for the largest output cuts ever to
combat shrinking demand and bulging inventories. []
On foreign exchanges, the dollar was slightly stronger
against a basket of currencies.
The euro was down 0.4 percent at $1.3651 <EUR=> after
earlier rising as high as $1.3738 on trading platform EBS, the
highest since mid-October.
The dollar dropped 0.5 percent to 90.27 yen <JPY=>, above a
13-year low of 88.10 yen hit on Friday.
The interest rate-sensitive two-year Schatz euro zone
government bond yield <EU2YT=RR> was down 3 basis points at
2.109 percent.
