GLOBAL MARKETS-European shares edge up but investors cautious ahead of Fed meeting

* Graphic: 2020 asset performance http://tmsnrt.rs/2yaDPgn
* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh
* For Reuters Live Markets blog: LIVE/

LONDON, July 29 (Reuters) - European shares edged up
slightly on Wednesday after mixed earnings reports, but a
resurgence of COVID-19 cases kept investors cautious while they
waited to hear from the U.S. Federal Reserve.
Wall Street closed lower on Tuesday and the negative
sentiment continued through the Asian session, with Japan's
Nikkei falling on a rising yen and weak start to the earnings
season.
But the MSCI world equity index .MIWD00000PUS , which
tracks shares in 49 countries, was up around 0.1% and mixed
corporate earnings saw MSCI's main European Index rise around
0.3% at 0757 GMT .MSER . "Global stock markets appear to be starting to get a little
wobbly as the latest earnings numbers start to paint a picture
of a global economy that could start to face a challenging time
in the weeks and months ahead," wrote Michael Hewson, chief
market analyst at CMC Markets UK.
"The resurgence of coronavirus cases that are starting to
get reported across the world is prompting the realisation that
hopes of a V-shaped recovery are starting to look like pie in
the sky," he added.
Deaths from coronavirus in the United States had their
biggest one-day increase since May on Tuesday, with this month's
spike in infections having forced some states to make a U-turn
on reopening their economies. Hong Kong leader Carrie Lam warned that the city was on the
brink of a large-scale outbreak and tightened lockdown measures.
Japan expects the economy to contract this year, with a
return to growth next year, four government sources told
Reuters. Global airlines cut their coronavirus recovery forecasts on
Tuesday, saying it would take until 2024 - a year longer than
previously expected - for passenger traffic to return to
pre-crisis levels. London's Heathrow called on the government to urgently
introduce a passenger testing regime, warning that the country
risked losing a game of global "quarantine roulette".
The dollar index, which steadied overnight, continued
falling in early London trading, hitting fresh two-year lows
=USD .
As sentiment soured, high-grade euro zone bond yields
dropped to their lowest in more than two months, with the German
10-year yield at -0.511% DE10YT=RR .
The euro, which rallied last week when European Union
leaders agreed on a massive EU-wide recovery fund, climbed 0.4%
to $1.1762 EUR=EBS .
Gold, which rallied to an all-time high of $1,980.57 on
Tuesday, slipped to $1956.3200 XAU= . Oil prices climbed after a surprise drop in U.S. crude
inventories was enough to offset concerns about U.S. fuel demand
amid record increases in COVID-19 infections in some states.
Brent crude futures LCOc1 were up 29 cents, or 0.7%, at
$43.51 a barrel by 0756 GMT. U.S. West Texas Intermediate crude
futures CLc1 gained 24 cents, or 0.6%, to $41.28 a barrel.
Investors are focused on the U.S. Federal Reserve, as it
begins its two-day meeting.
The Fed is expected to sound reassuringly accommodative at
its policy review later in the day and perhaps open the door to
a higher tolerance for inflation - something dollar bears think
could squash real yields and sink the currency even further.
Sentiment is also dampened by the U.S. Congress and White
House struggling to agree on a new deal to replace enhanced
coronavirus unemployment benefits, which are due to expire on
Friday.

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