Confidence is contagious. So is lack of confidence. - Vince Lombardi.

The bulls may well have retrieved some of the lost ground, but the conviction seems to be missing. Tuesday’s advance came on low volume, which has been the trend of late. In addition, FII inflows have tapered off though domestic funds have been select buyers.



We expect another anemic start with most Asian markets in red. US stocks closed slightly higher, but off the day's highs. European indices managed to extend their recent ascent.

Inflation has been moderating gradually, but the looming fuel price hike and rising global commodity prices are a cause of concern. The RBI is most likely to hold policy rates steady on Thursday but further tightening is not ruled out in 2011.

Meanwhile, the Federal Reserve has left its key interest unchanged and has reaffirmed commitment to QE2.

With a truncated trading week and year-end round the corner, trading volume could remain light. The key indices are likely to consolidate in a sideways fashion and may remain range bound for a while.

If the Nifty sustains above 5930 for the week, it could pave the way for further recovery up to 6070-6080 levels.

Asian Markets on Wednesday:

Asian stock indices were trading mostly lower in early morning trade on Wednesday, with the regional benchmark falling from a two-and-a-half-year high after Federal Reserve and Bank of Japan came out with dour outlook on two of the world’s largest economies.

The MSCI Asia Pacific Index fell 0.5% to 134.49 as of 11:01 a.m. in Tokyo, with about five shares declining for every four that advanced. The gauge rose yesterday to the highest level since July 2008.

The Nikkei 225 Stock Average was just in red at 10,312 after being as high as 10,340 and as low as 10,305. The Shanghai SE Composite index in China was down ~0.5% at 2,912 after touching a day's high of 2,930.

The Hang Seng in Hong Kong was down 0.6% at 23,290 after opening at a day's high of 23,371. The Kospi in Seoul was nearly unchanged at 2,008 after being as low as 2,006 and as high as 2,014.

The S&P/ASX 200 index in Sydney too was flat at 4,767 while the Straits Times index in Singapore fell 0.2% at 3,169. The Taiex of Taiwan was down 0.1% at 8,733.

Federal Reserve officials yesterday kept their plan to expand record monetary stimulus, saying that the US economic expansion has not been strong enough to reduce high rate of unemployment.

The Standard & Poor’s 500 Index in the US gained 0.1% yesterday in New York after the Commerce Department said that retail sales rose 0.8%. The median forecast of economists saw an increase of 0.6%.

Japan’s central bank said today that confidence among Japan’s largest manufacturers worsened for the first time since the end of the financial crisis last year as a stronger yen eroded export gains and the effect of government stimulus measures faded.

The quarterly Tankan index of sentiment at large manufacturers dropped to 5 in December from 8 in September, the Bank of Japan said in Tokyo. A positive number means optimists outnumber pessimists.

Sentiment is expected to fall to minus 2 in March, and companies submitted the strongest forecast for the yen since data began in 1996

China’s stocks fell for the first time in four days on concern that accelerating pace of inflation will force the policymakers to further tighten monetary policy next year.

The Chinese central bank on Dec. 10 ordered banks to keep aside more money with it for the third time in five weeks to absorb excessive liquidity.

US Markets on Tuesday:

US stocks closed higher on Tuesday but were well off the session highs despite the Federal Reserve policymakers reiterating their commitment to the so-called "QE2" programme of bond purchases and left the key rates unchanged.

US stocks rallied at start following a better-than-expected retail sales report from the Commerce Department, and held onto gains for most of the afternoon. But, the major stock indexes lost much of their steam as trading neared its close.

The Dow Jones Industrial Average gained 47.98 points at 11,476.54, with 19 of its 30 components posting gains. The S&P 500 Index finished barely changed at 1,241.59.

Telecommunications and health-care companies led gainers among the index’s 10 industry groups. Financial shares were the biggest laggard.

The Nasdaq Composite Index added 2.81 points to 2,627.72.

For every seven stocks that gained, eight fell on the New York Stock Exchange, where 957 million shares traded.

The dollar gained ground against the euro, the Japanese yen and the British pound.

Oil for January delivery slipped 33 cents to settle at $88.28 a barrel.

Gold futures for February delivery rose $6.30 to $1,404.30 an ounce.

The price on the benchmark 10-year US Treasury edged down slightly, pushing the yield up to 3.44%.

All three major US stock indexes have gained about 5% this month, and are up more than 6% for the quarter. Stocks are on track for double-digit gains for the year.

Investors remain cautious as they await Congress move to extend the Bush-era tax cuts. They are counting on the Congress to act on the proposed extension.

As expected, the Federal Reserve held interest rates near 0%, where they have been since the financial crisis took hold in 2008.

The central bank also maintained its rhetoric on the economy, saying that although it is recovering, the pace is not fast enough to combat the unemployment rate.

The Fed said it is moving ahead with its plan to pump US$600bn into the economy, known as quantitative easing or QE2, and did make any changes to the program.

European Markets on Tuesday:

European stocks advanced for a seventh consecutive session on Tuesday, with UK energy giant BP and French water and waste firm Suez Environment among the leading gainers in London and Paris, respectively.

The Stoxx Europe 600 index added 0.2% to 277.65, a new 2010 closing high.

The FTSE 100 index gained 0.5% to close at 5,891.21 in London. In France, the CAC 40 index rose 0.3% to 3,902.87. The German DAX 30 index finished nearly unchanged at 7,027.40.

Among Europe’s so-called peripheral markets, Ireland’s ISEQ and Spain’s IBEX 35 indexes both edged up 0.1%. Portugal’s PSI 20 dropped 0.7%.

In Milan, the FTSE MIB index rose 0.4% after Italian Prime Minister Silvio Berlusconi won two votes of confidence, one in the lower house of parliament and one in the Senate.

Shares of Mediaset SpA, the television and cinema firm controlled by the Berlusconi family via Fininvest Group, advanced 3.3%.

BP rallied 3.2% after the company said that it will sell $775 million of assets in Pakistan and as Credit Suisse named the energy firm as its top pick in the sector.

Shares of Allied Irish Banks Plc sank 4.6% in Dublin.

Late on Monday, Allied Irish said it had dropped plans to pay bonuses after Finance Minister Brian Lenihan threatened to withdraw state support extended to the group. AIB said it had been legally obliged to pay the bonuses, but that Lenihan has said he will now legislate on the issue.

Shares of UK restaurant and hotel operator Whitbread Plc slipped 2.8% on the London Stock Exchange. A trading update showed strong growth for its hotels and Costa Coffee chain, offset by more muted growth for its other restaurant operations.