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imageLONDON: European stock markets retreated on Wednesday after two days of strong gains, while the euro briefly hit a one-year low against the dollar as markets focused on central bank action.

By mid-afternoon, London's benchmark FTSE 100 index was down 0.49 percent to 6,746.24 points.

Frankfurt's DAX 30 dropped 0.75 percent to 9,264.11 points and in Paris the CAC 40 index lost 0.72 percent to 4,223.88 compared with Tuesday's close, as traders banked recent profits.

Five minutes into trading, the Dow Jones Industrial Average dropped 14.70 points (0.09 percent) to 16,904.89.

The broad-based S&P 500 lost 2.46 (0.12 percent) at 1,979.14 while the tech-rich Nasdaq Composite declined 6.40 (0.14 percent) to 4,521.12.

Europe's main indices had finished higher on Tuesday, extending the previous day's surge as easing fears about the Ukraine crisis fuelled investor optimism ahead of a speech by the head of the US Federal Reserve.

On Wednesday, the euro dropped to $1.3285 in early London trading hours -- the lowest point since September last year, and then recovered slightly to $1.3289. This compared with $1.3321 late on Tuesday in New York.

"The US dollar is continuing to derive support from the ongoing outperformance of the US economy in the near-term which appears to be strengthening while growth in most other major economies is losing momentum," said Lee Hardman, currency analyst at Bank of Tokyo-Mitsubishi UFJ.

Slow growth, low interest rates and tepid inflation on both sides of the Atlantic will be in focus when heads of the US and European central banks meet in Jackson Hole, Wyoming.

All eyes will focus on Janet Yellen, the Federal Reserve chair, and Mario Draghi, her counterpart at the European Central Bank, with observers looking and listening for signs of what they plan for interest rates.

Yellen is facing calls to begin raising interest rates soon after US measures aimed at stimulating the world's biggest economy are wound up in October.

British rate to rise?:

On foreign exchange markets, the euro fell to 79.84 pence from 80.15 pence on Tuesday, while the pound rose to $1.6642 from $1.6617.

The pound advanced on increased prospects of a rise to British interest rates before the end of this year, traders said.

This comes as the Bank of England stands divided on whether to maintain record-low interest rates. Minutes of the BoE's last meeting revealed on Wednesday a first split among policymakers for more than three years.

The 7-2 vote in favour of keeping the BoE's main lending rate at 0.50 percent at its August policy meeting was the first non-unanimous decision on borrowing costs since July 2011.

The split was significant because two members of the policy committee voted for the key rate to be increased.

Markets are watching to see when the Bank of England will embark on a round of interest rate rises as Britain's economic recovery outpaces the neighbouring eurozone.

The split "opens the door to the possibility of an interest rate increase being squeezed in before the end of the year, but with the weaker-than-expected (British) inflation figures posted yesterday this is far from a foregone conclusion," said Alastair McCaig, market analyst at IG trading group.

The price of gold dropped to $1,294.50 an ounce from $1,296.50 Tuesday on the London Bullion Market.

Standard Chartered fine:

On the corporate front, shares in bank Standard Chartered rose 0.08 percent to 1,218.50 pence. New York state's banking regulator on Tuesday hit Standard Chartered with a $300 million fine and restrictions on its dollar-clearing business for failing to detect possible money-laundering.

The new punishment came two years after the bank paid US regulators $667 million to settle charges it violated US sanctions by handling thousands of money transactions involving Iran, Myanmar, Libya and Sudan.

"Evidently the $300-million price is seen as something of a bargain by investors in the stock," said Tony Cross, market analyst at traders Trustnet Direct.

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