European stocks rose early on Wednesday, helped by a string of better-than-feared corporate results ahead of policy decisions by the U.S. Federal Reserve and the European Central Bank which some expect to result in bold action to support their economies.
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At 0917 GMT, the FTSEurofirst 300 index of top European shares was up 0.3 percent at 1,066.40 points in choppy trading.
The euro zone's blue chip Euro STOXX 50 index was up 0.4 percent at 2,335.72 points, moving back above a key resistance level pierced earlier this week, the 50 percent retracement of the market's slump from mid-March to early June.
Recent comments by European officials including ECB chief Mario Draghi have raised expectations the bank will announce steps to lower the borrowing costs of debt-burdened Spain and Italy when it meets on Thursday, triggering a sharp recovery rally in stocks.
But Bundesbank head Jens Weidmann poured cold water on hopes for a bold move, saying in an interview given in late June and just published that governments overestimate the central bank's capacities and place too many demands upon it.
Germany also continues to resist giving the euro zone's future ESM rescue fund a banking licence that would allow it to borrow from the ECB to fund government bond purchases.
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"Draghi's credibility is really on the line this time, and the central bank has to come up with strong measures," said David Thebault, head of quantitative sales trading at Global Equities.
"We're 'long' equities, with a bit of hedging as protection, and we're ready to cut all the hedging when we get confirmation that the ECB is to act decisively. We don't even need the Fed to unveil QE3 tonight for this rally to go on."
After the European closing bell on Wednesday, the Fed is expected to show that it is ready to act against a weakening U.S. economy but should stop short of aggressive measures such as a new round of quantitative easing while keeping the door open for such measures.
The Euro STOXX 50 has jumped nearly 10 percent after Draghi pledged last week to do whatever it takes to preserve the euro and the index's put/call ratio - a widely-followed measure of investor sentiment - dropped to a one-month low of 0.57 earlier this week, signalling a surge in investors' bullishness.
But the index's strongest three-day rally since late November has left the market extremely vulnerable to sharp pull-backs if the ECB disappoints, some traders said, while the macroeconomic newsflow remains grim.
Data showed on Wednesday the euro zone's manufacturing sector contracted for the 11th straight month in July as output and new orders plummeted, with Germany's manufacturing sector contracting at its fastest pace in more than three years.
The Euro STOXX 50's put/call ratio was back above 1 on Wednesday, according to data from the Eurex exchange, signalling more cautiousness from investors. Central bank sources have told Reuters that ECB intervention could be at least five weeks away because Draghi's comments had not been agreed in advance with the Governing Council, and other elements must first fall into place.
The sources said the ECB could revive its bond-buying programme in conjunction with the euro zone's rescue funds, but Spain would first have to request assistance, which it has so far resisted.
Euro zone leaders would have to agree to the rescue funds buying up government bonds, and the German Constitutional Court would have to uphold the legality of the bloc's permanent rescue fund in a ruling due on Sept. 12.
"The ECB might only use the threat of buying bonds if yields rise again, instead of starting to buy them straight away on Thursday afternoon. They could also unveil new liquidity measures to help the banks ... There are a lot of possible scenarios," said Saxo Banque senior sales trader Alexandre Baradez.
"But there is no silver bullet, and the market might have gotten ahead of itself."
Around Europe, the UK's FTSE 100 index was up 0.6 percent, Germany's DAX index up 0.1 percent, and France's CAC 40 up 0.4 percent.
On the earnings front, Schneider Electric gained 2.8 percent after posting a rise in first-half operating profit despite a low-growth business environment, while Standard Chartered surged 3.5 percent after posting forecast-beating results.