Markets subdued as focus turns to Fed

LONDON Markets were subdued Wednesday ahead of a run of U.S. economic news that should provide a clearer steer on the state of the world's largest economy and what further steps the Federal Reserve might take in the months ahead.

As well as monthly housing and producer price figures, the minutes to the last policy meeting of the Federal Reserve are due to be published Wednesday and traders will be interested to see the balance of opinion among rate-setters.

"There have been discussions in recent months over when the Fed will start to reduce the asset purchase program, so there's likely to be a reaction in the markets to any change of timeframe," said Craig Erlam, market analyst at Alpari.

Until further insights are available, caution appears to be the watchword of the day in markets.

In Europe, Germany's DAX was 0.2 percent higher at 7,766 while the FTSE 100 index of leading British shares rose 0.3 percent to 6,399. The CAC-40 in France was 0.2 percent lower at 3,729.

Wall Street was poised for a flat opening with both the Dow futures and the broader S&P 500 futures steady. On Tuesday, U.S. stocks got a lift from a report that major office supply retailers Office Depot and OfficeMax are in talks to combine their businesses.

Stock markets are often energized by speculation of takeovers. Aside from pushing up the share prices of the companies involved if the deal is regarded as a good one, investors also see big takeovers as a sign of confidence in the business and economic outlook.

Stocks have had a bumper year so far in 2013, but the pace of the advance has eased in February, especially as the Dow Jones nears its all-time high, which it again failed to breach on Tuesday.

"Given how markets have performed over the past few months, investors do not appear to be overly enthused at current levels," said Mike McCudden, head of derivatives at Interactive Investor. "With the prospect of deep U.S. federal spending cuts and an Italian election to cause a ripple across the eurozone, investors are looking for opportunities to take some risk off the table."

Traders are concerned about further bickering in the U.S. over the budget and political developments in Italy. An election this weekend could result in a split parliament, making it difficult for a coalition government to push through unpopular economic reforms.

In the currency markets, trading was generally pretty lackluster with the euro 0.2 percent lower at $1.3392 and the dollar 0.1 percent down at 93.56 yen.

One currency though that was making waves was the British pound after minutes to the last rate-setting meeting of the Bank of England showed Governor Mervyn King and two others backed another monetary stimulus. The pound was trading 0.8 percent lower on the day at $1.5313.

Earlier in Asia, Japan's Nikkei 225 rose 0.8 percent to finish at 11,468.28, its highest close in more than four years. The index briefly topped 11,500 for the first time since late 2008, despite a government report showing the country posted a record high monthly trade deficit of 1.63 trillion yen ($17.4 billion) in January.

Elsewhere, South Korea's Kospi advanced 2 percent to 2,024.64 while Hong Kong's Hang Seng added 0.7 percent to 23,307.41.

Oil prices were fairly solid with the benchmark New York rate up 35 cents at $97.46 a barrel.