World stocks nudged up and the euro held its ground on Wednesday as a crucial period for the euro zone began, with investors expecting the bloc's central bank to cut rates and its leaders to agree a plan to solve the region's debt crisis.
The European Central Bank is also expected to unveil a new package of bank aid, with investors looking for any hint it will intensify its buying of bonds issued by the euro zone economies struggling with high debt, setting the stage for a critical euro zone summit that starts with a dinner on Thursday night.
I have the feeling that euro zone politicians know what is at stake, Carsten Brzeski, senior economist for ING, told Reuters Insider.
I think they would try to do really everything to get their act together and to come off with some tangible results at the end of this summit, he said.
The euro was little changed at around $1.3415, having got a slight lift after two clearing houses cut the margin requirements on Italian bonds, a sign that pressure on the indebted country's debt had eased slightly.
The euro had risen in the Asian session after the Nikkei business daily said the G20 was preparing a $600 billion lending facility for the IMF to help Europe, but the effect faded after it was denied by G20 and IMF officials.
The single currency has gained 1.5 percent since it struck a seven-week low of $1.3213 on November 25, but investors are still wary of going further as many do not believe any short-term fix for the sovereign debt crisis will go far enough.
Global equities were up slightly, enjoying a brisk rally which has seen the MSCI All-Country World Index <.MIWD00000PUS> bound up 9 percent since the start of last week, mainly on hopes that the threat of financial meltdown would force European leaders to come up with a coherent plan to save the euro.
A Reuters survey of 73 analysts showed a 60-percent chance the ECB will cut rates by 25 basis points for the second month running, back to the record low of 1.0 percent it reached during the financial crisis in 2009.
Underling the case for a rate cut, the Bank of France said French growth will stall in the final quarter of the year, flagging a slowdown to zero growth after the euro zone's second-biggest economy grew 0.4 percent in the previous quarter.
German government bonds edged higher before the anticipated rate cut and the EU summit although most investors remained sidelined by uncertainty over whether politicians will do enough to stem the crisis.
Bonds from highly indebted countries on the euro zone periphery were also broadly steady after yields began to rise again on Wednesday when a German official dampened expectations of major breakthroughs at the summit.
(Additional reporting by Anirban Nag; Editing by Toby Chopra)