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World stocks drift as Fed remains the focus in markets

PARIS - Investors took to the sidelines Tuesday, a day ahead of a key policy decision from the U.S. Federal Reserve that may see the central bank reduce its massive monetary stimulus.

On Monday, stocks in Europe and the U.S. recorded big gains despite growing speculation that the Fed will decide to start tapering its $85 billion worth of financial asset purchases following the conclusion of its two-day meeting on Wednesday.

Though a withdrawal would represent a sign that the U.S., the world's largest economy, is strong enough to survive without the purchases, investors are wary. After all, the Fed's stimulus, in its various guises over the past few years, has helped shore up stock markets around the world over the past few years.

In Europe, France's CAC-40 fell 0.9 percent to 4,081, while Germany's DAX was down 0.4 percent to 9,124. The FTSE index of British shares pulled back 0.5 percent at 6,492.

Ahead of Wall Street's opening, futures were muted. Dow Jones industrial futures were flat at 15,818. S&P 500 futures fell 0.1 percent to 1,779.

The key piece of economic news later will likely be U.S. inflation figures for November. If price pressures remain benign, then it may encourage the Fed to maintain its current level of bond purchases.

"Low inflation is the only reason why some investors believe the Fed won't taper tomorrow, with the rest of the data over the last couple of months clearly showing that the economy is improving," said Craig Erlam, market analyst at Alpari UK.

Elsewhere, energy prices fell, potentially over concerns that economies would sputter if the Fed tapers. Crude oil lost 23 cents to trade at $97.25 a barrel.

But in a sign of how difficult it is for markets to guess what the Fed might do -- and what it will mean for the world economy -- the euro remained firm against the dollar, trading up slightly at $1.3774 and not far off its year's high.

Asian stocks were also mixed. Japan's Nikkei 225 closed 0.8 percent up at 15,278.63.  Hong Kong's Hang Seng slid 0.2 percent at 23,069.23. China's Shanghai's Composite fell 0.5 percent at 2,151.08. Australia's S&P/ASX 200 inched up 0.3 percent at 5,103.20.

Markets were up in Southeast Asia, led by the Philippines. The Philippine Stock Exchange index climbed 2 percent to 5,928.99. The Philippine economy may grow 7 percent this year -- the upper end of government's 6 percent to 7 percent target -- despite devastation in central regions due to a powerful earthquake and Typhoon Haiyan, Economic Planning Secretary Arsenio Balisacan said.

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