European stock markets pushed higher on Wednesday despite tensions escalating between Russia and the West, and as traders looked ahead to the decision on US interest rates.
In London, the FTSE 100 (^FTSE) rose 0.6% by the end of the session, helped by energy and defence stocks and weaker pound, while the CAC (^FCHI) climbed 0.8% in Paris, and the Frankfurt DAX (^GDAXI) was 0.7% higher.
"Fears have ratcheted up that there will be a sharp escalation of the war in Ukraine, after the mobilisation of 300,000 reservists, sending investors scuttling into safe haven assets," Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said.
"The alarming rhetoric of President Putin has rattled markets, sparking a fresh flight to the dollar, with the euro and sterling losing more ground."
It came as Jacob Rees-Mogg, UK business secretary, unveiled a package that will slash energy costs in half for British firms, and cut gas bills by a quarter, for six months.
The multi-billion-pound support will help British firms cope with soaring energy bills amid concerns the current crisis could spark a wave of company collapses.
Elsewhere, UK government borrowing climbed to £58.2bn in the first five months of the year, a figure that’s set to rise due to Liz Truss’s energy support package.
According to the Office for National Statistics (ONS) on Wednesday, public sector borrowing, excluding state-owned banks, came in at £11.82bn last month.
Read more: UK economy slows as demand falls in August
This was £2.6bn less than in August 2021, but £6.5bn more than in August 2019, before the pandemic, when the UK borrowed £5.3bn. A Reuters poll of economists had predicted the UK would borrow £8.45bn.
Inflation is taking its toll on public finances, with debt costs surging to £8.2bn. This was the highest for any August on record.
Investors are bracing for another hefty rise in US interest rates later today. Economists are predicting the US Federal Reserve will raise its benchmark interest rate by 0.75 percentage points.
This will mark the third consecutive rise, and signal plans to raise rates again in the coming months.
Watch: It's a Busy Week for Central Bankers
“Yesterday the Swedish Riksbank surprised markets by hiking its headline rate by 100bps, more than had been expected, pushing it from 0.75% to 1.75%, with the prospect of more to come,” Michael Hewson of CMC Markets said.
“The aggressive nature of the move raised concerns that we might well see the Federal Reserve follow suit later today, followed by the Bank of England and Swiss National Bank tomorrow, with yields pushing higher across the board.
“The main question today is whether we see the Fed move by 75bps today, or by 100bps which some started to call for in the middle of last week, after US core prices turned out to be much stickier than expected.”
On Tuesday, Wall Street ended lower, with the S&P 500 closing at a one-month low.
Stocks in Asia ended lower overnight, reversing the previous day's gains as investors geared up for an expected Federal Reserve interest rate hike.
Watch: How does inflation affect interest rates?