Morning Chronicle - European stocks rally before key Fed update

After weeks of uncertainty, the US central bank delivers Wednesday its views on the state of the world's top economy and how officials plan to tackle decades-high inflation without knocking its recovery off course.

While Fed boss Jerome Powell has pledged that interest rate rises would be carefully calibrated, the prospect of higher borrowing costs has rattled markets across the world with most key indices deep in the red from the start of the year -- and with Wall Street particularly hard hit.

Powell's comments Wednesday will be pored over for signs of the Fed's plans, which most commentators believe include a first hike in March.

"The big question going into this meeting for traders and investors is whether the Fed will increase... four times this year and when the first interest rate hike will take place," said Naeem Aslam, chief market analyst at Avatrade.

"Market players understand that the Fed needs to raise the interest rate. Hence, they have prepared themselves for an interest rate hike next month."

Markets strategist Louis Navellier expects three rate hikes this year and that after the recent bout of selling across markets, added that buying opportunities were emerging.

"I'm very comfortable that we are going to have a bottom here soon. Remember, the market is a manic crowd," he noted.

While there remains some optimism among analysts about the outlook, the International Monetary Fund on Tuesday lowered its growth outlook for the global economy saying it has started the year "in a weaker position than previously expected".

It said Omicron threatened to set back the recovery as countries impose containment measures, while other issues remained, including inflation and geopolitical tensions.

Included in those tensions is the standoff on the Ukraine-Russia border, with Moscow building up troop numbers and the West led by the United States warning the risk of an invasion "remains imminent".

US President Joe Biden said such a move would prompt "enormous consequences" and even "change the world", adding that he would consider imposing direct sanctions on Russian counterpart Vladimir Putin on top of a raft of measures being drawn up.

- Key figures around 1200 GMT -

London - FTSE 100: UP 1.8 percent at 7,505.10 points

Paris - CAC 40: UP 2.3 percent at 6,992.99

Frankfurt - DAX: UP 2.3 percent at 15,465.71

EURO STOXX 50: UP 2.3 percent at 4,173.86

Tokyo - Nikkei 225: DOWN 0.4 percent at 27,011.33 (close)

Hong Kong - Hang Seng Index: UP 0.2 percent at 24,289.90 (close)

Shanghai - Composite: UP 0.7 percent at 3,455.67 (close)

New York - Dow: DOWN 0.2 percent at 34,297.73 (close)

Euro/dollar: DOWN at $1.1277 from $1.1305 late Tuesday

Pound/dollar: UP at $1.3511 from $1.3507

Euro/pound: DOWN at 83.45 pence from 83.66 pence

Dollar/yen: UP at 114.18 yen from 113.87 yen

Brent North Sea crude: UP 0.9 percent at $88.99 per barrel

West Texas Intermediate: UP 0.6 percent at $86.14 per barrel

O.Sallow--MC-UK