European stocks before Fed stimulus

European stock markets fell on Thursday as dealers waited to see whether the Federal Reserve would announce measures to stimulate the US economy at a monetary policy meeting. London\'s benchmark FTSE 100 index dipped 0.08 percent to 5,782.05 points in late morning deals, Frankfurt\'s DAX 30 dropped 0.35 percent to 7,317.89 points and in Paris the CAC 40 shed 0.64 percent to stand at 3,521.11. The Madrid market slid 1.0 percent and Milan gave up 0.65 percent. Company news was dominated by a possible tie-up between British arms manufacturer BAE Systems and European aerospace giant EADS which controls Airbus. After shooting higher Wednesday in response to the possibility of a shock deal, BAE shares slumped 6.44 percent to 340 pence in Thursday trading. In Paris, EADS fell almost eight percent. The two giants revealed they were in talks to create a global aerospace and defence leader that would better rival US giant Boeing. They envisaged BAE owning 40 percent of the enlarged group, with EADS holding a majority 60-percent stake. In foreign exchange deals, the euro rose to $1.2919 from $1.2899 late in New York on Wednesday, when the European single currency went above $1.29 for the first time for four months. \"Today sees the finale in the series of major events that have dominated over the past two weeks,\" said Chris Beauchamp, market analyst IG Index trading group. \"The Fed will announce its latest policy decision, with many still expecting a burst of stimulus from (chairman) Ben Bernanke. \"What we are likely to see is an extension to the period of ultra-low interest rates, but we would need to see something fairly impressive if the Fed is to avoid creating a wave of disappointment. \"The trend from the important announcements of late, be they from the ECB, a German court or Ben Bernanke, has been broadly positive, and today\'s Fed meeting could help to top off what has been a reasonable late summer for markets.\" The US central bank was due to conclude its two-day meeting later Thursday and most economists have predicted a third round of Fed bond-buying, or quantitative easing (QE3), to spur domestic growth. European stock markets and the euro won a boost on Wednesday from German approval for a new firewall, clearing a key hurdle in solving the debt crisis. Germany\'s Constitutional Court overturned a raft of legal challenges aimed at preventing President Joachim Gauck from signing the European Stability Mechanism (ESM) and fiscal pact that will act as a debt brake. With the 500-billion-euro (645-billion-dollar) ESM in place and a beefed-up European Central Bank ready to intervene massively on the markets, the EU\'s crisis fighting machinery is taking shape, and has elicited positive response on markets where borrowing costs for weaker eurozone states continued to fall. Italy\'s borrowing costs plunged on Thursday in an auction of medium- and long-term bonds that raised 6.5 billion euros, indicating an easing of tensions on eurozone financial markets. Italy raised 4.0 billion euros in bonds falling due in 2015 at 2.75 percent from 4.65 percent before, 1.5 billion euros due in 2026 at 5.32 percent from 5.9 percent and 1.0 billion euros due in 2017 at 3.71 percent from 4.60 percent. Demand for the bonds was three times the amount on offer, the Bank of Italy said. In the eurozone, Dutch Liberal Prime Minister Mark Rutte vowed to work hard to quickly form a cabinet after receiving a solid mandate to battle Europe\'s debt crisis at the expense of anti-EU populists. His ruling VVD won Wednesday\'s election with 41 seats, just two more than centre-left Labour, while far-right leader Geert Wilders\' PVV party suffered a humiliating defeat and far-left Socialist leader Emile Roemer made no gains.