European shares consolidate 5-yr high before Fed decision

Wed Sep 18, 2013 12:46pm EDT
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By Francesco Canepa

LONDON (Reuters) - European shares hovered near five-year highs on Wednesday, staying within their weekly range as investors held fire expecting the U.S. Fed to announce a first cut to its equity-friendly stimulus program.

The pan-European FTSEurofirst 300 .FTEU3 closed up 0.5 percent at 1,258.43 points, led by tech stocks as traders speculated about a possible bid for chip maker ARM Holdings ARM.L and handset firm Nokia NOK1V.HE was boosted by a broker upgrade.

The FTSEurofirst was hovering a touch below a five-year high of 1,262.25 points hit on Monday and well within its 1 percent range for the week.

Investors were reluctant to make large directional bets on indexes before a Federal Reserve announcement scheduled for 1800 GMT. Expectations center on a $10 billion cut to its $85 billion monthly asset purchases, which have helped the FTSEurofirst rise around 15 percent in the past year.

With a small reduction to the program now seen as priced in, any indication about the pace of future cuts was likely to set the market's tone for the coming months.

"If you make it too data-dependent you ... are just fuelling volatility (in asset prices)," William de Vijlder, chief investment officer for strategy and partners at BNP-Paribas Investment Partners, said.

"If you set a timeframe ... to roll back the program so that it stops at a certain date, the market would price that instantaneously and you would not create any volatility."

De Vijlder saw equities as being in a sweet spot at a time when the global economy showed signs of recovery and a gradual reduction in the Fed's purchases hurts demand for bonds.   Continued...