LONDON (AFP) — Europe's main stock exchanges retreated on Wednesday, as investors digested more negative subprime news ahead of a vital interest rate decision from the US Federal Reserve, dealers said.
The US central bank was tipped to trim rates again later on Wednesday after last week's steep emergency cut that was aimed at steadying volatile world stock markets.
In Europe on Wednesday, the Paris CAC 40 of leading shares dived 1.54 percent to 4,865.16 points, London's FTSE 100 fell 0.85 percent to 5,835.30 and Frankfurt's DAX 30 dropped 0.67 percent to 6,846.45.
The Euro Stoxx 50 index of leading eurozone shares sagged 0.80 percent to 3,779.51.
The European single currency stood at 1.4807 dollars.
"The Fed interest rate decision is the key event today (Wednesday) and markets are likely to tread water ahead of the decision," said Calyon analyst Mitul Kotecha in London.
"What is clear is that there is a great deal of uncertainty surrounding the decision from the market's perspective.
"Many feel that the Fed was pressured into cutting interest rates in the wake of sharp declines in global equity markets."
Wall Street had risen for a second day in a row on Tuesday as traders positioned for a likely rate cut.
But Japanese shares were weighed down on Wednesday by reports that the securities unit of megabank Mizuho Financial Group was facing more subprime mortgage-related losses than it had expected, dealers said.
And in Europe, the financial sector was hit after Swiss banking giant UBS said it would post a loss of 4.4 billion Swiss francs (3.5 billion dollars, 2.75 billion euros) in 2007 owing to its exposure to the US subprime housing sector crisis.
UBS shares slid 1.50 percent to 46.1 Swiss francs in Zurich trade.
In Paris, shares in French bank BNP Paribas sank 2.20 percent to 66.11 euros.
And in London, British peers Barclays and Royal Bank of Scotland saw their share prices fall heavily after broker Citigroup reiterated its 'sell' recommendation for both companies.
Later Wednesday, some analysts expect that the US Federal Reserve will slash rates by a half-point, which would take the key federal funds rate to 3.00 percent.
Financial markets were roiled last week by an emergency 0.75 percentage point rate cut amid fears that the world's largest economy could be headed for a recession.
"In our view, the main risk scenario is that the Fed sours market sentiment with a 25 basis points rate cut," said Commerzbank analyst Gavin Friend on Wednesday.
"Such an outcome risks sending equity markets lower."
But he added: "The Fed still has further to go and should not waste anytime before cutting again as economic conditions warrant a quick and aggressive easing."
In US deals on Tuesday, the Dow Jones Industrial Average closed up 0.78 percent at 12,480.30 points, extending gains from a big rally on Monday that helped push up global markets.
The Nasdaq added 0.35 percent to 2,358.06 and the Standard & Poor's 500 index increased 0.62 percent to end at 1,362.30 points.
However in Asia on Wednesday, the Tokyo Stock Exchange's benchmark Nikkei-225 index fell 0.99 percent to close at 13,345.03 points on pre-Fed jitters. Hong Kong's key Hang Seng index finished 2.6 percent lower at 23,653.69.
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