Caution reigns as Fed and Greek uncertainty rumble on

LONDON | By Marc Jones

Electronic information boards display market information at the London Stock Exchange in the City of London January 2, 2013.

Reuters/Paul Hackett

Investors in most asset classes traded cautiously on Wednesday as they waited for a signal from the U.S. Federal Reserve on its first post-crisis rate hike and to see whether the euro zone would pull a Greek rabbit out of its hat.With much of it still guesswork though, Europe's main bourses were a shade lower <0#.INDEXE>, Wall Street was pointing to a slightly higher start ESc1, while the euro .DXY and dollar .DXY were nudging around in tight ranges.
Ultra-safe German government bonds and the Swiss franc had been the preferred options for much of the morning in Europe but the former were beginning flag as traders started to withdraw ahead of the Fed.

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Markets are hoping the U.S. central bank's statement due at 2 p.m. EDT, followed half an hour later by Chair Janet Yellen's news conference, will trim down
the list of potential hike dates which currently stretches from September to late next year.
After watching the U.S. economy contract in the first quarter, Fed policymakers will have to judge whether healthier recent jobs, wage and consumer spending data are enough to allow its first rate rise in almost a decade."Right now, markets are pricing a-less-than 30 percent probability the Fed hikes in September, but a-greater-than 60 percent probability they hike by December," said Richard Clarida, global strategic advisor at bond fund giant PIMCO.
"I suspect Yellen would not be unhappy if, after her press conference, the markets price in a higher probability of a September."
The dollar was barely budging ahead of the Wall Street restart, at $1.1258 per euro, buying 123.97 yen though stronger-than-expected wage growth in Britain saw it bow to sterling at $1.57.
Whenever a Fed hike comes, it will mark a major turning point for global markets, effectively ending an unprecedented era of easy money that has helped drive both global stock and many major bond prices to record highs.
There still remains far too much uncertainty in other parts of the world however to signal the all clear, especially in the euro zone where its debt crisis continues to flare.
Relations between Greece and its creditors have become increasingly acrimonious in recent days, leaving hopes that the country will avoid a default on IMF loans hanging by a thread.
Euro zone finance minister are due to meet on Thursday but there was talk of plans being put in place for another emergency summit at the weekend.
EMERGING PRESSURE
Greece's national central bank sent out a stark warning that failure to clinch a deal would: "mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country's exit from the euro area and, most likely, from the European Union,"
"Striking an agreement with our partners is a historical imperative that we cannot afford to ignore," it said.
Spanish, Italian and Portuguese bond yields which have climbed to multi-month highs this week in one of the most serious episodes of euro debt contagion since the height of the debt crisis in 2010-12, dipped for a second day despite a higher start.
However, Portugal, which like Greece had to be bailed out by the European Union and IMF, saw its short-term borrowing costs rise sharply at a debt auction. Germany also saw its costs rise at an auction it held.
Overnight in Asia the mood had seemed a bit more positive.
MSCI's index of Asia-Pacific shares outside Japan .MIAPJ0000PUS gained 0.8 percent, moving away from a three-month low on Tuesday as Chinese stocks rallied by more than 2 percent from the day's lows.
The Shanghai market had gained 50 percent since the start of the year, making Chinese stocks the world's best performers in U.S. dollar terms.
There are, however, worries about frothiness. Thomson Reuters data shows that some stock markets, such as the Shenzhen stock exchange .SZCE, currently trade far above their 10-year median average.
Emerging markets are closely watching the Fed's moves. Traditionally they are highly sensitive to changes in U.S. rates because it makes their own ones relatively less attractive for global investors and can play havoc with their currencies.
Deutsche Bank Managing Director Nick Lawson said he expected MSCI's benchmark EM stock index .MSCIEF - standing at a 2-1/2 month low - to break down out of a range it has been in for the last four years when U.S. rate hikes begin.
Outflows from emerging market equity and bond funds hit their highest since 2008 according to data from fund-tracker EPFR.
In commodities, oil prices were a shade firmer as plentiful output was met by strong demand, with the market waiting for U.S. storage figures later in the day.
U.S. crude futures CLc1 was up over a dollar at $61.17 a barrel, while Brent LCOc1 climbed to $65.17. Gold was sidelined at $1,179.50 an ounce and copper nudged off a three-month low.
(Additional reporting by Wayne Cole in Sydney; Editing by Crispian Balmer)