Stocks and euro drift lower before Fed meeting

Wed Sep 21, 2011 7:22am EDT
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By Natsuko Waki

LONDON (Reuters) - World stocks drifted lower on Wednesday and the euro also slipped ahead of the Federal Reserve's closely-watched policy meeting, with concerns about a possible Greek default weighing on investor sentiment.

Persistent concerns about Greek sovereign debt limited any excitement ahead of the Fed, with Greece and international lenders yet to reach a deal to allow Athens more funds despite some progress.

The Fed is expected to announce at 2:15 p.m. ET plans to shift its portfolio in favor of longer-dated bonds and so push long-term interest rates -- already near historic lows -- even lower in a move known as Operation Twist.

However, it is not clear how effective such new measures would be in significantly bolstering U.S. growth, given that the economy is still slowing down after its $600 billion bond buying program that ended in June.

"The market expects that the Fed will come up with some new plans to stimulate the economy. Investors will be extremely disappointed if the Fed does not announce a plan to rebalance its portfolio," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels.

"But if it does, we might see limited reaction as it is already priced in."

The MSCI world equity index .MIWD00000PUS was down 0.2 percent on the day, staying around 4 percent above its one-year low set earlier in September.

U.S. stock futures were up around 0.2 percent, pointing to a firmer open on Wall Street later.   Continued...

<p>A man looks at the main hall of Warsaw Stock Exchange in Warsaw September 20, 2011. REUTERS/Kacper Pempel</p>