Markets edge higher as Fed meeting starts

LONDON (AP) -- Stock markets edged higher Tuesday as a two-day policy meeting of the U.S. Federal Reserve got underway — a meeting that could have a huge influence on how investors see the future path of the country's monetary policy.

For weeks now, markets have been gripped with uncertainty over whether the Fed will start reducing the amount of financial assets it is buying. For most of the past few years, the Fed's super-easy and cheap monetary policy has helped drive sentiment in the markets. Any reduction — so-called tapering — could spook investors who have become accustomed to seeing much of the money generated by the policy ending up in financial markets.

The uncertainty was caused by comments made by Fed chairman Ben Bernanke in May and investors will be hoping for a clearer picture at the end of this month's meeting on Wednesday. Though no change is expected on Wednesday, investors will be looking for a clearer line in the accompanying Fed statement and in Bernanke's post-meeting press conference.

The nervousness surrounding the Fed was evident Monday when an opinion piece in the Financial Times about the Fed's intentions spooked investors and prompted some selling in U.S. markets.

"At best the markets will be looking for reassurance from Bernanke that the Fed intends to keep rates low for some time to come and that it will be looking to manage any form of reduction of stimulus measures in a very gradual and orderly manner in a fashion that takes into account the state of the US economy," said Michael Hewson, senior market analyst at CMC Markets.

In Europe, the FTSE 100 index of leading British shares ended Tuesday up 0.7 percent at 6,374, while Germany's DAX rose 0.2 percent to 8,229. The CAC-40 in France was barely changed on the day, down 0.08 percent at 3,860.

In the U.S., the Dow Jones industrial average was up 0.8 percent at 15,300 while the broader S&P 500 index rose 0.7 percent at 1,649.

Tuesday's batch of U.S. data did little to add to the debate over the Fed's stance. The rise in inflation to 1.4 percent in the year to May from 1.1 percent in April was in line with predictions and largely due to base effects. Meanwhile, the 6.8 percent rise in housing starts during the month was a tad lower than anticipated.

"No change in the outlook for the economy or inflation from these two data releases," said Steven Ricchuito, chief economist at Mizuho Securities.

The dollar's near-term outlook, particularly against the euro, rests on the Fed too. Europe's single currency was up 0.35 percent at $1.3408. Against the yen, the dollar has been buffeted by Japan's own monetary stimulus. Following recent losses, the dollar is back in favor, trading 0.75 percent higher at 95.24 yen.

Earlier in Asia, Japan's Nikkei stock average shed early gains to fall 0.2 percent to 13,007.28. Trading volume was the lowest for the year. Elsewhere, Hong Kong's Hang Seng index was nearly flat at 21,225.88, while South Korea's KOSPI index gained 0.9 percent at 1,900.62.

Oil prices tracked equities modestly higher, with the benchmark New York rate up 16 cents at $97.93.