Europe Shares Close Lower Ahead of Fed Decision

European stocks closed lower on Thursday after a day's thin trade, as investors await to see if the U.S. Federal Reserve will unveil further stimulus measures which could add fresh fuel to the market's sharp three-month rally.


The pan-European FTSEurofirst 300 index of top European shares closed 0.1 percent lower at 1,106.71 points.

The Fed is expected to launch a third round of quantitative easing (QE3)later on Thursday and could signal that the frail U.S. economy may warrant ultra-low interest rates for at least another three years.

"There might be a bit of disappointment tonight if the Fed doesn't announce a new round of quantitative easing, but a pull-back after such a strong rally sparked by [ECB head Mario]Draghi's 'magic words' would be quite healthy," said Alain Zeitouni, head of multi-asset management, France, at Russell Investments, which has $166 billion under management.

"But the real question about QE3 is not 'if' the Fed will launch it, it's 'when' it will launch it. If it's not today, it'll be in the next few months."

Euro zone banking stocks were among the top losers, trimming recent lofty gains.

Italian three-year borrowing costs fell on Thursday to their lowest in almost two years at an auction. The Treasury also sold new 15-year bonds, the first time in more than a year.

In stocks news, shares in Britain’s defense giant BAE Systems and Franco-German aerospace firm EADS both closed sharply lower. The two companies confirmed on Wednesday they are in talks for a merger that would form a commercial and military giant in the aerospace and defense industry.

Daimler , the German car company, said on Thursday that the BAE-EADS merger could lead to the "dissolution of Franco-German EADS shareholder pact" and could therefore sell its stake in EADS on the open market.