GLOBAL MARKETS: European Stocks Up

LONDON (Dow Jones)-European stocks were higher Tuesday, climbing back following losses in the previous session although volumes have been limited with investors waiting keenly for key policy events later in the week.

The U.S. Fed will start a two-day meeting later Tuesday and will release its policy statement Wednesday. On Thursday and Friday, leaders from the Group of 20 nations will meet in Pittsburgh, and any comments on the global economy or financial regulation will be watched closely.

ING said it was unlikely that the Federal Reserve would change rates. Its macro note said, “Given the benefits of the Fed???s tough anti-inflation talk but strong deflation concerns, there seems little likelihood of significant change to either rates or the accompanying FOMC statement on Wednesday.”

Despite the rather muted tone in Europe in terms of market catalysts, all the major bourses were higher. At 0755 GMT, the pan-European Stoxx 600 index increased 1.0% to 245.4. London’s FTSE 100 index was up 1.0% at 5186.5, Frankfurt’s DAX index gained 1.2% to 5736.2, and the CAC-40 index in Paris climbed 1.1% to 3852.9.

“The month-long rally in equities is obviously tied to the improvements we have seen in the economy,” said Bob Doll, chief investment officer of equities at BlackRock.

“Policymakers remain in a ‘do-whatever-it-takes’ mode to stimulate the economy and the financial markets, and we believe it is safe to say that the risk of sinking into a depression has been taken off the table,” he said.

Certainly the M&A story still has legs in Europe after Cadbury PLC (CBRY.LN) looked as if it was warming, in theory, to the bid from Kraft Foods Inc. (KFT). Shares in Cadbury were up 0.6% after its chief executive said a deal would make “some strategic sense.” However, the U.K. confectioner also approached the takeover regulator to put Kraft on notice that the suitor must formalize its bid soon.

Meanwhile, French hotels and corporate services company Accor SA (AC.FR) jumped 5% after it raised EUR272 million from the sale of 158 of its hotelF1 low-budget hotels.

Elsewhere, Imperial Tobacco Group PLC (IMT.LN) gained 0.4% after saying its full-year performance would meet expectations. The world’s fourth largest tobacco group by sales appeared to be shrugging off the effects of the global recession in its brief but reassuring trading update.

Earlier, Asian shares were mixed Tuesday, as markets remained relatively quiet with some investors becoming cautious before the U.S. Federal Reserve’s policy meeting Wednesday and the G-20 summit.

South Korea’s Kospi Composite ended up 1.4% and Hong Kong’s Hang Seng Index rose 0.3%. Markets in Japan, Malaysia and Indonesia were closed for public holidays. China’s Shanghai Composite Index slumped 2.3% after a very choppy session.

In the U.S., the three sectors at the forefront of the market’s now six-month rally - energy, materials and financials - all pushed lower Monday.

Chevron, Potash and American Express paced only the third decline in 12 sessions for the Dow Jones Industrial Average and Standard & Poor’s 500.

Overall, the Dow Jones Industrial Average closed down 0.4% at 9778.9. The Standard & Poor’s 500 declined 0.3% to 1064.7, but the Nasdaq Composite gained 0.2% to 2138.0.

In foreign exchange markets the dollar fell against the euro and the yen, giving up recent gains. The euro was at $1.4777 from $1.4676 in late New York trade Monday, while the dollar was at Y91.38 from Y92.05.

Sean Callow, forex strategist at Westpac Institutional Bank said uncertainty ahead of big policy events later this week could put a cap on any short-term dollar weakness.

Meanwhile, spot gold was up around $12 at $1013 per troy ounce from the New York close, while Nymex crude oil futures for October were last up 59 cents at $70.30 per barrel, after falling $2.33 Monday. Weakness in the dollar was helping here.

European government bond markets were lower Tuesday, bracing for the latest round of government debt issuance. The December bund futures contract was last seen down 0.21 at 119.96. The lack of euro zone economic data were also limiting upside here.

-By Andrea Tryphonides, Dow Jones Newswires; +44-20-7842-9281; [email protected]

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