* MSCI world index stays just off 21-month high
* Investors expect Fed to cut rates, focus on policy outlook
* European shares slip, but Fiat-Peugeot merger news caps
losses
* First-stage trade deal may be delayed
(Updates throughout, changes byline/dateline)
By Sujata Rao
LONDON, Oct 30 (Reuters) - World shares slipped off 21-month
highs on Wednesday as the prospect of a U.S. interest rate cut
was offset by reports a Sino-U.S. trade deal may be delayed, but
a possible $50 billion merger between Fiat-Chrysler and PSA
capped European losses.
Sentiment has also been dented by weak earnings from a
swathe of companies ranging from European banking giant Deutsche
to tech titan Google, and by renewed uncertainty in Britain,
which is set to hold a parliamentary election on Dec. 12.
After falls of around 0.5% on Asian bourses MIAPJ0000PUS
.N225 .CSI300 , European shares opened softer, with a
pan-European equity benchmark .STOXX down 0.2%.
The market was supported by the auto index .SXAP which
rose 0.7% after news that carmakers were in talks for a merger
that would create one of the world's biggest companies. Fiat
Chrysler FCHA.MI and French PSA PEUP.PA shares jumped 7-8%
But broader sentiment was undermined after Reuters quoted a
U.S. official as saying an interim trade agreement between
Washington and Beijing might not be completed in time for
signing next month. That weighed heavily on trade-sensitive tech .SX8P and
commodity shares .SXPP in Europe, and MSCI's world equity
index .MIWD00000PUS edged down after five successive sessions
in the black.
Michael Hewson, chief market strategist at CMC Markets, said
the deal news had not sharply lifted shares because regulatory
hurdles remain, not least the French government's stake in PSA.
"We've seen a lot of companies exploring M&A and I struggle
to understand why this deal in particular is any more probable
than the one with Renault," he said, said referring to Fiat's
failed attempt to acquire another French carmaker.
Some caution has also crept in before the U.S. Federal
Reserve announcement at 1800 GMT. Fed funds rate futures 0#FF:
price a 25 basis-point cut on Wednesday but markets are fixated
on what message the central bank will send, and December rate
cut expectations have ebbed in recent days.
"The Fed could be quite hawkish in terms of 'this is it' and
send a message markets don't really want to hear. They are
pricing the Fed on a full-blown cutting path and that may not be
what the fed wants to convey," Hewson said, noting still-robust
U.S. growth and booming stock markets.
But futures signalled a weaker session for New York, after
the S&P500 hit a record high .SPX . It had been boosted by
strong earnings from drug manufacturers Merck MRK.N and Pfizer
PFE.N but closed lower after the trade deal report.
TREPIDATION OVER SNAP ELECTION IN BRITAIN
Adding to that was a disappointing report from Google parent
Alphabet GOOGL.O which pushed the tech-heavy Nasdaq Composite
.IXIC 0.6% lower. On the European earnings front, Deutsche
Bank DBKGn.DE fell more than 6% after reporting a loss for the
second consecutive quarter.
Germany's Volkswagen VOWG_p.DE provided a reminder of
slowing global demand, cutting its 2019 sales outlook,
Its shares slipped 0.7%.
Investors have abandoned some of their safe-haven bets in
recent weeks and piled into equities since U.S. President Donald
Trump outlined what he called the first phase of a trade deal
with China and expectations grew the U.S. Federal Reserve would
cut rates by 0.25 percentage point again this month.
That has taken world stocks almost 3% higher this month
while expectations of more U.S. rate cuts after this month have
faded, lifting U.S. Treasury yields to six-week highs while
German yields are set for their biggest monthly rise since Jan
2018 US10YT=RR DE10YT=RR .
Two-year U.S. bond yields are around 1.65% US2YT=RR ,
rising off two-year lows of 1.368% in early-October while
10-year yields stood at 1.833% US10YT=RR , up 20 bps this
month.
But the rally has stalled amid the uncertain outlook for
trade, economic growth and company profits while optimism over
Britain averting a no-deal exit from the European Union has been
replaced by trepidation over the calling of a snap election.
If no party wins conclusively the future of Brexit will be
up in the air again, with options including Britain leaving the
EU without agreement with Brussels, or another referendum being
held that could scupper the divorce. Those developments have pulled sterling 1.2% lower in the
past week against the dollar. On Wednesday it traded modestly
firmer around $1.29 and versus the euro it edged up to 86.3
pence GBP=D3 EURGBP=D3 .
The dollar was steady against other major currencies .DXY
before the Fed meeting and an advance reading of third-quarter
economic growth which could shed light on the rate outlook.
Against the yen, the greenback was little moved at 108.86
yen JPY= just off a three-month high.
"If the market is going to price in the end of the current
rate-cut cycle, the dollar/yen could climb above 110 yen," said
Tohru Sasaki, head of Japan markets research at JPMorgan Chase
Bank. "On the other hand, if the market is going to price in two
more cuts after this month's expected cut, the pair could fall
to mid-107 yen level."