European shares muted on caution ahead of Fed rate decision

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STOXX 600 flat

Euro zone manufacturing downturn eases

Husqvarna climbs on Q4 sales beat

Novartis slips on weakness in key products

U.S. Fed meet due at 1900 GMT

Updates to market close

By Ankika Biswas and Amruta Khandekar

Feb 1 (Reuters) -European shares were muted on Wednesday ahead of a widely anticipated interest rate hike and accompanying commentary from the U.S. Federal Reserve that would provide more clues on the central bank's monetary tightening plans.

The pan-European STOXX 600 .STOXX cut early gains and was flat at the close.

The Fed is widely expected to raise its benchmark interest rates by 25 basis points to 4.50%-4.75% at 2 p.m. ET (1900 GMT).

Investors will also watch Chair Jerome Powell's news conference for clues on how long interest rates could stay elevated.

"Equity markets aren't wanting to make any major moves until we've heard from the Federal Reserve," said Giles Coghlan, chief market analyst at HYCM.

"What the market's oscillating between (is) 'are we going have a very hawkish Powell who's going to tackle inflation or can we have a more dovish Powell, who's more concerned about slowing growth?'"

The Fed's decision will be followed by monetary policy announcements by the European Central Bank and the Bank of England on Thursday, with both likely to raise interest rates by 50 basis points.

The STOXX 600 clocked its biggest January gain since 2015 in the previous session, as a milder winter and China's reopening brightened the outlook for the euro zone economy.

A survey by S&P Global showed the downturn in euro zone manufacturing activity eased again last month.

Meanwhile, a separate report showed euro zone inflation eased for a third straight month in January, but concerns have already been raised about the reliability of the figures.

On Wednesday, Europe's industrial stocks .SXNP were a big boost to the STOXX 600, with Germany's DAX index .GDAXI up 0.4%, helped by gains in Deutsche Post DPWGn.DE and Airbus AIRG.DE. Other bourses in Europe were mixed.

Banks .SX7P rose 0.8%.

BBVA BBVA.MC gained 4.7% after the Spanish bank's fourth-quarter net profit rose 17.6% year-on-year.

However, the gains were offset by steep declines in the healthcare sector .SXDP, with shares of Swiss drugmaker Novartis NOVN.S down 2.7% after analysts pointed to weakness in its key drugs.

On the other hand, Danish drug maker Novo Nordisk NOVOb.CO forecast strong 2023 saleswhile GSK GSK.L beat fourth-quarter profit and sales forecasts.

Still, shares of both firms were down 0.1% and 0.3% respectively.

Among other companies reporting results, Sweden's Husqvarna HUSQb.ST jumped 4% on better-than-expected fourth-quarter sales.

Earnings growth estimates for STOXX 600 companies during the fourth quarter have halved to 7.3% from 14.5% at the start of January, Refinitiv data showed on Tuesday.

Reporting by Ankika Biswas and Amruta Khandekar in Bengaluru; Editing by Savio D'Souza, Vinay Dwivedi and Alex Richardson


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