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London stocks surge, rest of Europe cautious before US rate call

Eurozone stock markets moved higher as investors hoped for hints of extra stimulus from the European Central Bank

London's bluechip index surged Wednesday on the back of a rousing budget statement by the British government, but Europe's other markets were muted before a US interest rate decision.

The benchmark FTSE 100 index of top companies closed 1.57 percent higher at 6,945.20 points after British finance minister George Osborne raised the country's growth forecast to 2.5 percent while slashing its deficit forecasts.

Frankfurt's DAX 30 index however lost 0.48 percent to 11,922.77 points, while the CAC 40 in Paris finished flat at 5,033.42 points in cautious trading before the Federal Reserve wrapped up a key decision rate meeting.

The euro climbed to $1.0655, continuing its recovery after falling on Monday to $1.0458 -- the lowest level for more than 12 years.

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"Following the optimistic tone from the UK budget, the London equity benchmark index rallied strongly," said Myrto Soku from Sucden Financial Research.

Osborne, who was delivering Wednesday his coalition government's last annual budget ahead of a looming general election on May 7, said Britain was "on the road from austerity to prosperity".

London's energy sector rallied as Osborne unveiled £1.3 billion (1.8 billion euros, $1.9 billion) in aid for Britain's North Sea oil industry, whose operations have been hit by slumping global oil prices.

Anglo-Dutch energy group Royal Dutch Shell's 'A' shares soared 2.4 percent to 2,022.50 pence and British peer BP added 2.39 percent to 436.10 pence.

- Fed 'patient' removal -

Wall Street was trading down as many Fed watchers anticipate its decision making FOMC will delete its reference to being "patient" -- used in the December and January statements -- about raising near-zero rates in its latest post-meeting statement.

"Ever since the Fed first announced that it would begin tapering its asset purchases back at the end of 2013, market participants have been trying to predict when the first rate hike would follow," said analyst Craig Erlam at traders Oanda.

"More than 12 months on and it seems like the first hike is imminent; all we?re waiting on now is the Fed to remove its pledge to be 'patient' which in its words means no rate hike for at least the next two months.

"If that comes today, as has been widely speculated, that would mean an interest rate hike could come as early as June, although not necessarily that particular month."

In early afternoon trade, the Dow Jones Industrial Average was down 0.67 percent, while the broad-based S&P 500 lost 0.39 percent and tech-rich Nasdaq fell 0.34 percent.

In Asia, Shanghai and Hong Kong were the stand-out performers, with investors buoyed by comments from Chinese Premier Li Keqiang that the government can support the economy if it continues to struggle.

Japan's Nikkei index rallied from early losses as Nintendo soared more than 21 percent, hitting its daily stop limit, after the company announced plans to enter the mobile gaming market.