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London - European shares rose in cautious trading on Wednesday on expectations that the US Federal Reserve may signal after a meeting later in the day that it will continue to keep interest rates low for a longer period.
However, British equities underperformed, as investors remained jittery ahead of Scotland's referendum on independence on Thursday. Three opinion polls showed Scottish supporters of staying in the United Kingdom were 4 percentage points ahead of secessionists.
Britain's blue-chip FTSE 100 index was up 0.2%, against a 0.6% gain for the FTSEurofirst 300 index of top European shares to 1 386.66 points by 12:35. The European index hit a two-week low in the previous day.
Sentiment on European markets was lifted after US stocks turned positive on Tuesday on a report in the Wall Street Journal, which indicated the Fed could be less hawkish than markets have been expecting, traders said.
"The latest figures on consumer confidence, retail sales and unemployment rate all point towards a change in tone from the Fed," FXCM analyst Vincent Ganne said.
"The market's recent move has the shape of a 'buy the rumour, sell the news' pattern, so I wouldn't be surprised to see stocks moving lower following the Fed. The end of the central bank's support is the main risk facing equity markets at the moment."
The US central bank began its two-day policy meeting on Tuesday, and while it has said it doesn't expect to raise interest rates until 2015, recent strong economic data has led Fed officials to acknowledge they may need to move sooner than they previously anticipated.
"In previous statements, the Fed has stated that rates will not rise for a 'considerable amount of time' after the end of quantitative easing, which many took to mean the middle of next year or even later," Alpari analyst Craig Erlam said.
"If the FOMC decides to remove this from its statement, people will be forced to revise their forecasts for the first rate hike which would weigh heavily on equities."
Miners were the top sectoral gainers, with the STOXX Europe 600 Basic Resources Index rising 1.2%. Rio Tinto rose 1.2%, while ArcelorMittal was up 2.4% after media reports said China's central bank was injecting a combined $81bn of liquidity into the country's top banks.
Analysts said it could be a sign that authorities were stepping up efforts to shore up a faltering economy, adding that such a move would potentially boost demand for commodities in China, the world's top metals consumer.
French stocks, up 0.8%, slightly outperformed as Prime Minister Manuel Valls headed off a backbench revolt against his government on Tuesday, winning a confidence vote after promising to preserve France's social model while pushing pro-business reforms intended to boost growth.
"It was a close call but it's enough to stabilise the political situation in the short term. This is essential as the government needs to go ahead with various reforms," said Alexandre Baradez, chief market analyst at IG France.
British engineering conglomerate Smiths Group fell 5.8%, the top decliner in the FTSEurofirst 300 index, after saying its full-year headline operating profit slumped 10%.
Richemont dropped 3.6% after the maker of Cartier watches said that weakness in Asia-Pacific, its biggest market, weighed on sales growth in the five months to August. Rival Swatch Group, the world's biggest watchmaker, fell 1.5%.
