European stocks were set to edge higher on Wednesday, poised to end a volatile month on a mildly stronger note, while the dollar struggled on heightened expectations that the U.S. Federal Reserve would do more to stimulate the economy.

Minutes of the Fed's early August meeting released on Tuesday showed policymakers discussed a range of unusual tools they could use to help the economy, with some actually pressuring for bold new steps to shore up a flagging recovery.

This added to expectations the Fed may spring into action at the next meeting in September.

The FOMC meeting minutes showed that Fed governors are becoming anxious, indicating a few members felt that recent developments justified a more substantial move, said Jessica Hoversen, fixed income and foreign exchange analyst at MF Global in note.

A rise in unemployment on Friday may push this faction of Fed officials over the edge, she said.

Hopes of a Fed stimulus offered some respite to beaten down European shares which could yet post their biggest monthly drop since October 2008.

European stocks bore the brunt of the severe setback earlier this month as markets were roiled by a sovereign downgrade in the U.S., persistent debt problems in the euro zone and sharp cuts to global growth expectations.

The FTSEurofirst 300 <.FTEU3> index of top European shares is down 13 percent this month while Germany's DAX <.GDAXI> has slumped 21 percent and is down nearly 25 percent since hitting a 3- year high in May this year.

The indexes are expected to open 0.3-0.5 percent higher, according to financial spreadbetters. <.EU>

In Asia, the MSCI index of Asian stocks outside Japan <.MIAPJ0000PUS> is down 9.5 percent. On the day it rose 0.9 percent helped by a 1.7 percent jump in Korea's KOSPI <.KS11>.

U.S. stocks futures pointed to an extension of the modest overnight gains as signs of the Fed willing to take aggressive steps helped offset the gloom from the slump in consumer confidence in the U.S., which hit a two-year low.

In Japan, the Nikkei <.N225> closed flat at 8,955.2 on profit-taking after four straight gaining sessions.

The index may stay in a narrow range below 9,000 until we have more catalysts for a U.S. economic recovery, said Fumiyuki Takahashi, managing director at Barclays Capital.

He added that domestic institutional investors such as pension funds are buying below 9,000, while foreign investors are hesitant to take positions ahead of U.S. non-manufacturing data from the Institute for Supply Management and U.S. jobs data later this week.

JOBS DATA AWAITED

A Reuters poll showed economist forecast U.S. non-farm payrolls rising 80,000 in August with unemployment staying at 9.1 percent.

In currency markets, the euro fell across the board, particularly against commodity currencies, after lukewarm demand at an Italian bond auction threatened to push the euro zone's third biggest economy back to the center of the region's debt crisis.

The dollar faced problems of its own as the prospect of further monetary easing in the U.S. would further cement its status as a funding currency in carry trades.

The dollar index <.DXY> which measures the dollar's strength against a trade-weighted basket of currencies is down 6.3 percent this year and is poised to finish flat on the month.

Brent crude hovered at $114 a barrel on Wednesday after posting six days of gains on expectations the United States will act again to try to stimulate its economy and boost fuel demand.

Spot gold edged lower on the day, pulling back from a 2.6 percent rally in the previous session but in contrast to stocks, is set for its biggest monthly gain since November 2009. It is up 12.6 percent this month.

(Additional reporting by Ayai Tomisawa in TOKYO; Editing by Ramya Venugopal)

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