European equities fell yesterday on fresh concerns over banks’ exposure to indebted Greece, but losses were capped by expectations of more stimulus measures from the US Federal Reserve. However the European single currency recovered to $1.3724 from $1.3702 late in New York on Tuesday as traders said investors were relieved Greece appeared to be making progress towards unlocking urgently needed rescue loans.

The dollar was stable at 76.37 yen from 76.39 yen on Tuesday. London’s FTSE-100 index of leading shares dropped 1.40 per cent to finish the day at 5,343.85 points, while Frankfurt’s DAX fell 2.47 per cent to 5,433.80 points and in Paris the CAC-40 slid 1.62 per cent to 2,935.82 points. Elsewhere in Europe, Amsterdam dropped 1.38 per cent, Milan 1.65 per cent and Madrid 1.82 per cent. Swiss stocks edged out a gain of 0.07 per cent and Lisbon added 0.38 per cent.

Banks faced fresh selling pressure, one day after the International Monetary Fund and the European Commission warned about the health of lenders exposed to Greece’s Debt Mountain and indicated that their capital levels should be hiked. Shares in French bank BNP Paribas sank by 1.85 per cent, while Société Générale shed 1.28 per cent and Credit Agricole lost 2.38 per cent.

Traders remain focused on debt-plagued Greece amid lingering concern that it could default, which would spark a major acceleration in the eurozone debt crisis.”All we’ve seen since the weekend is a lack of any progress and clear evidence of a fractured eurozone,” said David Morrison, analyst at trading group GFT. “Decisions are being delayed and investors are getting worried. There is a hope that Greece’s default will be delayed and orderly, but few believe it can be avoided.”

Greece yesterday pledged to do “anything” to stay in the eurozone and gain access to bankruptcy-saving loans, although unions announced new strikes against the painful austerity measures being imposed. After conference calls with Finance Minister Evangelos Venizelos on Monday and Tuesday EU and IMF auditors agreed to resume their review of Greek finances needed to unlock eight billion euros in rescue funding.

The audit had been suspended in early September, with sources citing lack of progress with reforms, placing in jeopardy the release of funds needed to prevent Athens running out of cash next month. Aside from eurozone troubles, traders are gearing up for the outcome of this week’s US Federal Reserve policy meeting, which is widely expected to offer up some new stimulus for the sagging American economy.

US stocks were mixed ahead of the Federal Reserve statement to come out at 1815 GMT, with the Dow Jones Industrial Average down 0.36 per cent at 11,367.64 points in late morning trade. The broader S&P 500 was off 0.32 per cent at 1,198.30 points, while the tech-heavy Nasdaq Composite outperformed, gaining 0.44 per cent to stand at 2,601.67 points.

Most analysts expect the central bank’s Federal Open Market Committee will announce further stimulus to help the economy. “The Fed is widely expected to announce it will actively extend the duration of its Treasury portfolio by selling short-term paper and reinvesting long,” said Chris Low, at FTN Financial.

Such a move should further press down long-term interest rates, in hopes of prodding cash-rich banks to lend and companies to invest despite gloomy economic forecasts. But worries by some FOMC members over rising prices was expected to temper any strong moves, including a renewed “quantitative easing” programme that would inject billions of dollars of liquidity into the economy.

Modest moves could disappoint markets hoping for a big move – but would appease those fearful that the Fed could deadlock over how it should deploy its limited bag of monetary tools. Asian stocks mostly rose in edgy trade yesterday, helped by bargain buying as dealers awaited the end of a US Fed meeting.

Tokyo gained 0.23 per cent, Seoul 0.89 per cent, Sydney 0.78 per cent and Shanghai 2.66 per cent. However, Hong Kong fell 1.00 per cent to its lowest since July 2009.

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