By Jeremy Gaunt, European Investment Correspondent
LONDON, Dec 16 (Reuters) - Investors bought stocks and sold
the dollar on Tuesday ahead of a Federal Reserve meeting
expected to cut interest rates and hint at future unorthodox
monetary policies to lift the U.S. economy.
Wall Street looked set for a positive start, soothed by
relatively good earnings from banking giant Goldman Sachs
<GS.N>.
Oil was trading above $45, 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 generally positive with MSCI's main
stock index <.MIWD00000PUS> in positive territory. If it stays
that way for the month, the 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 0.7
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.
OPEC TO CUT
Oil firmed 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 80 cents
higher at $45.231 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 lower against a basket
of currencies.
The euro was flat at $1.3605 <EUR=> after earlier rising as
high as $1.3738 platform EBS, the highest since mid-October.
The dollar dropped 0.9 percent to 89.90 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 6 basis points at
2.098 percent.
