Financial markets stalled on Wednesday as uncertainty about when the Federal Reserve will end its monetary tightening campaign kept investors sidelined, while crude oil rose above $72 a barrel on worries about U.S. gasoline supplies.

The Fed begins its two-day meeting later in the session and is widely expected to raise interest rates to 5.25 percent, leaving markets to study the accompanying statement for clues on whether a further increase will follow in August.

U.S. stock futures were pointing to a slightly firmer start on Wall Street, mirroring European shares which inched higher.

The FTSEurofirst 300 index was up 0.2 percent at 1,271.9 points, having fallen almost 9 percent from the five-year peak it reached in mid-May on worries about higher inflation and interest rates, and slowing economic growth.

Many of the concerns and risks are still there but they are now very well reflected in consensus sentiment and valuations, said Teun Draaisma, head of European equity strategy at Morgan Stanley.

The current theme is all about will rates stifle growth? Inflation is not a problem and the most recent growth indicators look great, so I think no, rates won't stifle growth.

Merger and acquisition activity continued to provide pockets of opportunity, with music group EMI jumping 10 percent after rejecting a $4.6 billion bid from Warner Music Group and Anglo-Dutch steel group Corus up 3.4 percent on talk of an imminent offer from Russia's Severstal.

Asian stocks struggled as the uncertain interest rate outlook weighed, with Japan's Nikkei average notching up its biggest one-day fall in two weeks to end 1.9 percent lower at 14,886.1 points.

BONDS DIP, DOLLAR FIRM

Euro zone government bonds were also on the defensive, with yields holding near multi-year highs before the Fed and after strong German consumer confidence data highlighted the recovery in Europe's biggest economy.

The Gfk consumer sentiment indicator rose to 7.8 from an upwardly revised 7.0 a month earlier, beating expectations and giving the highest reading since November 2001.

The September Bund future was four ticks lower at 115.07, but holding comfortably above five-week lows of 114.86 hit in the previous session after the Ifo institute said business sentiment in Germany soared to a 15-year high in June.

Major currencies were trapped in tight ranges before the Federal Open Market Committee (FOMC) meeting, with the dollar holding near a two-month peak against the yen and a touch firmer against the euro.

The euro was trading down 0.1 percent at $1.2565, while the dollar bought 116.25 yen.

The market is reluctant to seek new positions ahead of the FOMC. We know they would raise rates but the market wants to see what kind of balance they would strike, said Daragh Maher, currency strategist at Calyon.

We've seen a pick-up in core inflation and expectations for a moderation in growth. If one overshadows the other it will give an indication for August (rate decision).

There was more activity among peripheral currencies though, with the New Zealand dollar falling more than 1 percent to a two-year low versus the dollar after worse-than-expected trade data undermined expectations that the country's growing current account deficit might soon level out.

The kiwi traded down 1.6 percent at $0.5950.

The Turkish lira firmed to around 1.6150 per dollar after the Turkish central bank raised its overnight lending rate by 200 basis points to 22.25 percent.

The central bank had already raised rates by 400 basis points so far this month to rein in inflation and support the currency, which has lost almost a quarter of its value against the dollar since the end of April.

COMMODITIES EDGE UP

Commodity prices edged higher but traders said there was a reluctance to take big positions before the outcome of the Fed meeting, due around 1815 GMT on Thursday.

NYMEX crude oil futures edged above $72 a barrel on concerns over disruptions to U.S. gasoline supplies during peak summer demand after the closure of a shipping channel in Louisiana disrupted deliveries from three refineries.

U.S. weekly inventories data is due at 1430 GMT and are expected to show a small rise in gasoline stocks but a fall in crude supplies.

Copper traded up more than 2 percent after falling close to 4 percent on Tuesday, while gold nudged up to around $584 an ounce.

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