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Europe cautious ahead of Fed meeting; closes flat

European shares closed flat on Wednesday, as investors awaited the Federal Reserve's policy decision.

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Fed decision eyed

The pan-European FTSEurofirst 300 closed flat at 1,387.64 points, with central bank watchers trying to guess when the Fed might start to raise interest rates.

The U.K. FTSE 100 benchmark closed unofficially 0.2 percent higher. The French CAC ended down 0.1 percent and the German DAX was 0.1 percent higher.

The Fed kicked off its two-day policy review late on Tuesday, with a rate decision due at 7 p.m. London time on Wednesday. It is expected to announce another $10 billion cut to its regular asset purchases, taking them to $35 billion a month.

The central bank will also publish updated economic projections for 2014, which could lead to some market volatility.

Read MoreBeware this move from the Fed

"As we get closer to the Federal Open Market Committee meeting, the market is becoming increasingly nervous, and the reactions to economic data correspondingly more severe," Evan Lucas, a market strategist at brokerage IG Markets, said in a research note,

He added that the default position for markets at the moment was "prudence and hibernation."

Meanwhile, the minutes from the latest meeting of the Bank of England were released. These showed that officials were unanimous in voting for no rate hike.

However, this was accompanied by a statement stating that the, "Relatively low probability attached to a bank rate increase this year, implied by some financial market prices, was somewhat surprising."

Analysts warned that this could mean a rate rise will happen sooner than expected.

Markets' new game: Guess the rate hike timing

Iraq tensions intensify

On Wednesday, newswires reported that Sunni militants had attacked Iraq's Baiji oil refinery, the largest in the country.

Plus, Prime Minister Nuri al-Maliki fired four of his top security officials on Tuesday in the wake of insurgency in the north of the country, according to Reuters.

Read MoreSelling terror: How ISIS runs like a corporate entity

The tension has boosted the price of Brent crude oil. In turn, this pushed up the shares of European oil majors like Royal Dutch Shell, BP and Total.

Zoopla flotation

In stocks news, Swedish retailer H&M closed around 0.4 percent higher after the company released second-quarter earnings that were in line with forecasts.

Meanwhile, shares of Zodiac Aerospace slipped 2.7 percent on a nine-month sales report and JP Morgan downgrading its target price.

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