Fed statement looms and markets drift as investors remain cautious

LONDON — Markets drifted lower Wednesday ahead of a keenly awaited policy statement from the U.S. Federal Reserve.

The central bank wraps up a two-day policy meeting later and investors are looking to see if policymakers are moving towards any change in its monetary policy stance. The Fed's strategy of super-low interest rates and easy money over the past few years has been designed to shore up the U.S. economy. It has also helped drive sentiment in the markets.

Fears that the Fed might reduce the amount of financial assets it buys have been behind the recent volatility — investors 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.

"If Bernanke hints at tapering in the coming months again today, we could see further selling in the weeks and months ahead," said Craig Erlam, market analyst at Alpari.

Ahead of the statement, investors were in a cautious mood.

In Europe, the FTSE 100 index of leading British shares was down 0.4 percent at 6,348 while Germany's DAX fell 0.4 percent to 8,197. The CAC-40 in France was 0.5 percent lower at 3,839.

The dollar was steady against the euro, which was trading at $1.3402.

Earlier in Asia, trading was mixed. While, the Nikkei 225 stock average rose 1.8 percent to 13,245.22, Hong Kong's Hang Seng index fell 1.1 percent to 20,986.89, and South Korea's KOSPI index shed 0.7 percent to 1,888.31.

Worries that the Fed may scale back its bond purchase program have also had an impact on emerging markets in recent weeks. The super-easy monetary policies by central banks in advanced economies like the U.S. prompted money to flow into Asian markets, which could see a reversal when the global central banks unwind their aggressive stimulus programs.

As elsewhere, the focus in oil markets is on the Fed too and trading was fairly lackluster ahead of the central bank's statement — the benchmark New York rate was down 8 cents to $98.59 a barrel.

____