Markets subdued as focus turns to Fed

LONDON (AP) -- Markets were subdued Wednesday ahead of a key release from the Federal Reserve that could provide a steer on what the central bank may do in the months ahead.

The minutes to the last policy meeting of the Fed are due to be published later and traders will be interested to see the balance of opinion among rate-setters amid mixed signals over the outlook for the U.S. economy.

"There have been discussions in recent months over when the Fed will start to reduce the asset purchase program, so there's likely to be a reaction in the markets to any change of timeframe," said Craig Erlam, market analyst at Alpari.

Until further insights are available, caution is likely to dominate markets. U.S. housing starts figures did little to alter the prevailing mood as the 8.5 percent monthly drop in housing starts in January was distorted by an upward revision to December's already strong increase.

In Europe, Germany's DAX closed 0.3 percent higher at 7,728 while the FTSE 100 index of leading British shares rose 0.26 percent to 6,395. The CAC-40 in France was 0.7 percent lower at 3,709.

In the U.S., the Dow Jones industrial average was barely unchanged, down 0.09 percent, at 14,022 while the broader S&P 500 index fell 0.42 percent to 1,524. Both indexes are near five-year highs but the Dow is in the spotlight as it's not far off its all-time record.

Stocks have had a bumper year so far in 2013, but the pace of the advance has eased in February, especially as the Dow Jones nears its all-time high.

"Given how markets have performed over the past few months, investors do not appear to be overly enthused at current levels," said Mike McCudden, head of derivatives at Interactive Investor. "With the prospect of deep US federal spending cuts and an Italian election to cause a ripple across the eurozone, investors are looking for opportunities to take some risk off the table."

Traders are concerned about further bickering in the U.S. over the budget and political developments in Italy. An election this weekend could result in a split parliament, making it difficult for a coalition government to push through unpopular economic reforms.

In the currency markets, trading was generally pretty lackluster with the euro 0.5 percent lower at $1.3344 and the dollar 0.03 percent off at 93.61 yen.

One currency though that was making waves was the British pound after minutes to the last rate-setting meeting of the Bank of England showed Governor Mervyn King and two others backed another monetary stimulus. The pound was trading 0.95 percent lower on the day at $1.5288.

Earlier in Asia, Japan's Nikkei 225 rose 0.8 percent to finish at 11,468.28, its highest close in more than four years. The index briefly topped 11,500 for the first time since late 2008, despite a government report showing the country posted a record high monthly trade deficit of 1.63 trillion yen ($17.4 billion) in January.

Elsewhere, South Korea's Kospi advanced 2 percent to 2,024.64 while Hong Kong's Hang Seng added 0.7 percent to 23,307.41.

Oil prices dropped with the benchmark New York rate down $2.06 at $95.04 a barrel.