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World stocks mixed despite expected US Fed action

LONDON/HONG KONG--Stocks in Europe and Asia were mixed on Thursday as markets worried that their hopes of Federal Reserve action to stimulate the U.S. economy might not be met.

The Fed wraps up a two-day policy meeting Thursday, and most investors hope that it will choose to jumpstart the world's largest economy and reduce high unemployment by embarking on a further round of quantitative easing.

“There is risk of disappointment in case the Fed surprises by not easing policy as much as the market expects,” said Stan Shamu of IG Markets in Melbourne, Australia.

Most European stocks fell in late morning trading. Germany's DAX lost 0.3 percent to 7,323.39 points while France's CAC-40 was 0.5 percent down at 3,524.66. Britain's FTSE 100, however, added 0.03 percent to 5,783.61.

European stocks got a big boost on Wednesday after Germany's highest court rejected calls to block the creation of Europe's 500-billion-euro (US$640 billion) rescue fund for indebted governments. Meanwhile, a parliamentary election in the Netherlands showed strong support for current Prime Minister Mark Rutte and his pro-euro polices. The euro climbed 0.5 percent on the day to US$1.2920, the first time it's been above the US$1.29 threshold since May.

The creation of the European Stability Mechanism rescue fund for indebted governments could be crucial in containing the European debt crisis that threatens the world economy, and so is participation of Germany, the eurozone's economic powerhouse.

But the rally seemed to be short-lived as analysts said that the European rescue fund would still be inadequate in case of a deepening crisis in Spain and Italy.

“In the event of a Spanish and Italian bailout, even with ESM ratification, the resources available fall short of what is required for such bailouts,” Neil MacKinnon, global macro strategist at VTB Capital, said in an emailed note.

Italy's central bank on Thursday easily raised 4 billion euros (US$5.16 billion) at an auction of three-year notes with demand at 1.49 times the offer.

The biggest step that investors hope the Fed would take is a third round of bond purchases. In two previous bond-buying programs, the Fed bought more than US$2 trillion of Treasurys and mortgage-backed securities after the 2008 financial crisis.

Tom Kaan, head of equity sales at Louis Capital Markets in Hong Kong, said that while Fed Chairman Ben Bernanke strongly hinted last month that action would be taken, the real question was how big any steps might be.

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