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UniCredit share issue helps lift banks before Fed meeting

By Nigel Stephenson

LONDON Global shares edged up on Tuesday, helped by gains in banks after Italy’s largest lender unveiled a 13 billion euro share issue, while the dollar held steady before a Federal Reserve meeting expected to deliver higher interest rates.

UniCredit launched Italy’s biggest share issue to clean up its balance sheet and boost profitability in the latest move to strengthen the Italian banking sector, which has been a major concern clouding the outlook for European stocks.

UniCredit shares rose 6.8 percent, an index of Italian banks rose 2.7 percent as the pan-European STOXX 600 share index gained 0.6 percent.

Markets were otherwise focused on the two-day Fed meeting, which is almost certain to conclude with only the second rise in U.S. interest rates since the global financial crisis.

While a hike of 25 basis points in the Fed’s target range of 0.25-0.50 percent is priced in, investors will be examining the Fed’s statement and economic forecasts for any signs of how the central bank thinks Trump’s election has affected the outlook for growth and inflation.

“The big question is what sort of pace can we expect from the Fed for next year?” said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

The dollar barely moved against a basket of major currencies. The euro fell 0.1 percent to $1.0624 and the yen fell 0.2 percent to 115.24 per dollar.

Sterling, however, rose 0.2 percent to $1.27, buoyed by comments from finance minister Philip Hammond that Britain should have a transition period to smooth its exit from the European Union.

Data showed UK consumer prices rose 1.2 percent year-on-year last month, their biggest rise since October 2014.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.1 percent, while Japan’s Nikkei stock index shrugged off losses as the yen pulled off its highs and ended 0.5 percent higher.

Global shares, as measured by MSCI’s all-country world index, rose 0.1 percent but held below Monday’s 16-month high, touched as crude oil prices surged after the Organization of the Petroleum Exporting Countries and non-OPEC producers reached their first deal since 2001 to reduce output.

Brent crude, the international benchmark, rose 0.1 percent on Tuesday to $55.74 a barrel but traded well below Monday’s high of $57.89.

Italy’s efforts to clean up its banks – the Treasury said on Monday it was ready to bail out Monet dei Paschi di Siena if necessary – pushed yields on its government debt lower and saw the premium the country pays to borrow compared with Germany squeezed to its narrowest in more than a month.

Italian 10-year yields fell 7 basis points to 1.94 percent while German equivalents fell 4 bps to 0.37 percent.

This followed new Prime Minister Paolo Gentiloni announcing an almost unchanged cabinet on Monday.

“The markets appear to be taking the developments in the banking sector quite positively and the cabinet chosen by Gentiloni has reassured investors,” DZ Bank strategist Christian Lenk said.

Gold, which is highly sensitive to rising U.S. interest rates as they lift the opportunity cost of holding non-yielding assets, fell 0.3 percent to just below $1,160 an ounce.

(Additional reporting by John Geddie and Patrick Graham in London; Editing by Catherine Evans)