Stocks rise ahead of Fed, Dutch vote result

London - Stock markets displayed mild optimism on Wednesday with investors mostly playing it safe ahead of a likely Federal Reserve rate hike and the outcome of a closely watched Dutch election.

London was helped by the British unemployment rate striking a 41-year low, while Frankfurt and Paris also posted small gains at the close.

A sharp recovery in the oil price provided most of the impetus, boosting energy stocks.

"Oil, the saviour before the Fed," Jasper Lawler, an analyst with the London Capital Group, summed up the day.

The US central bank's Federal Open Market Committee (FOMC) is all but certain to announce an interest rate hike later on Wednesday.

"Global equities are positive, albeit just, as we head towards another US rate hike and potential for further populist, anti-immigration backlash, this time from the Netherlands," said Mike van Dulken, head of research at Accendo Markets.

Aided by stronger oil, Wall Street was cautiously firmer around mid-session in New York, with the Dow edging up around 0.3%.

"Traders are taking no chances," said Fawad Razaqzada, an analyst at Forex.com.

Yearning for Yellen

Expectations are such that markets will react badly if Fed chief Janet Yellen fails to deliver on a 0.25-point rate rise, or even if she signals too much Fed caution moving forward.

"If the Fed doesn't deliver the rate rise, it sure will shock the markets and cause the dollar to collapse," said Fawad Razaqzada at Forex.com.

In Europe, millions of Dutch voters go to the polls Wednesday in an election overshadowed by a blazing diplomatic row with Turkey, with all eyes on the fate of far-right MP Geert Wilders.

Following last year's shock Brexit referendum and Donald Trump's surprise victory in the US presidential polls, the Dutch vote is seen as a litmus test of the strength of far-right and populist parties ahead of crucial elections in France and Germany later this year.

Most Asian stock markets retreated as investors stayed on the sidelines ahead of the Fed's call.

Oil bounces

Oil prices rebounded after the International Energy Agency said in its latest monthly report that Opec crude producing nations were complying with a landmark deal to curb a global supply glut.

The market had dipped on Tuesday after data emerged showing key producer Saudi Arabia increased production last month, raising questions about the Opec cartel's reduction commitment, just as US shale output expands.

On currency markets the pound edged up after hitting an eight-week low in New York as Britain prepares to trigger its exit from the European Union.

The euro also firmed, but is struggling as investors nervously await the Dutch election outcome.