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US stocks brace for possible Fed liftoff

Wall Street looked set to open near the flatline on Wednesday as the U.S. Federal Reserve kicks off a two-day meeting that could end with its first interest rate hike in almost a decade.

Thursday's Fed rate decision is perhaps one of the most highly anticipated in some time, with investors waiting to see whether an improving labor market will encourage the central bank to lift record low interest rates or recent volatility in global markets means it holds its fire for a bit longer.

One of the last data points out ahead of the Fed meeting, August CPI, showed a decline of 0.1 percent. The ex-food and energy figure rose 0.1 percent.

Treasury yields ticked slightly lower from highs hit Tuesday, with the 2-year briefly falling to 0.78 percent and the 10-year near 2.27 percent.

The U.S. dollar reversed to trade lower against major world currencies, with the euro near $1.128 and the yen around 120.5 yen against the greenback.

Other data out this session include the September NAHB Housing Market Index at 10:00 a.m. ET.

Janet Yellen
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Janet Yellen

The mood in stock markets was tepid, with U.S. stock futures mostly flat. Dow Jones industrial futures rose almost 50 points before dipping in and out of negative territory.

European shares traded higher and Asian stocks ended the session on a firm note. China's benchmark Shanghai Composite index staged a late-day rally to close almost 5 percent higher — adding to upbeat sentiment in global stock markets.

Still, with the Fed decision looming, a subdued session was expected for Wall Street.

"For the next two days all eyes are on the Fed… is a 25 basis point tightening on the cards?," Bill Blain, a strategist at Mint Partners, said in a note.

"Let's wait and see – the expectation numbers seem to suggest not. But despite the apparent implied threat of a Fed hike, markets feel constructive and have even got their buying boots on," he said.

Economists are split on what the Fed will do and are not pricing in a hike for September, with about 28 percent odds factored into fed funds futures.

But in a sign that some investors are bracing for a rate hike, yields on short-dated U.S. Treasurys rose to their highest levels in almost four and a half years on Tuesday. When a bond's yield rises, the price falls.

On the earnings front, FedEx reported quarterly profit of $2.42 per share, 4 cents below estimates, with revenue matching forecasts. CEO Fred Smith said the company is doing well considering weaker than expected global economic conditions. Separately, FedEx will increase rates by 4.9 percent at its FedEx Express service, effective Jan.4.

Oracle was upgraded to "buy" from "neutral" at SunTrust, which cites increasing opportunities for Oracle's cloud-based business as well as valuation. Oracle is scheduled to report quarterly numbers after the close.

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Hewlett-Packard may also be in focus after the tech firm said on Tuesday that it expected to cut a further 25,000 to 30,000 jobs in its enterprise business.