European stock markets will keep a close eye on the US central bank's rate decision, while also watching economic indicators for future growth prospects, amid a thin corporate agenda next week.
With two weeks to go before Christmas, stock markets will look for direction and with prospects of a looming economic slowdown in the United States, the Fed's interest rate decision on Tuesday and its reasoning will be watched closely.
"Next week could be more volatile, as investors are more aware of risks. The biggest worry is the further development of the US economy," Landesbank Berlin said.
"Economic indicators do not show a consistent trend and markets react more sensitively to negative news than they did a month ago," the bank said. However, Ralf Groenemeyer, strategist at German Commerzbank, said stock markets would probably become more stable next week, especially if the dollar did not weaken further.
The euro was steady against the dollar at $1.3339 at 1445 GMT on Friday, just off its recent 20-month high. "The euro should stabilise against the dollar, the pound and the yen during the course of the next couple of weeks. Although big jumps like we have seen against the greenback recently should not occur until the year-end," Bjoern Bender, currency analyst at Helaba Trust said in a research note.
The FTSEeurofirst 300 index of top European shares was down 0.4 percent at 1,442.68 points by 1445 GMT on Friday, but looked set to end the week 1.5 percent higher.
Europe's top-300 index remains up 12.7 percent for the year. On December 12 the US Federal Reserve's Open Market Committee (FOMC) will hold its meeting on interest rates, with a policy statement to be issued at 1915 GMT. It is widely expected to keep its target Fed funds rate unchanged at 5.25 percent.
"It will be important to listen closely to what the Fed has to say on future risks," Groenemeyer said. Another important indicator to watch on Tuesday will be the German ZEW indicator of investor sentiment for December, due at 1000 GMT and seen improving to minus 25.0 from minus 28.5 the month before.
Contrary to the Ifo business climate index, another heavy-weight German sentiment indicator, the ZEW has dropped over the past couple of months as analysts anticipate a negative impact from the rise in value-added tax in Germany next year.
"But a number of analysts have recently adjusted their 2007 growth forecasts upwards, which should be reflected in the outlook for December," Germany's Postbank said. On the European corporate agenda British bank Lloyds TSB and lenders Alliance & Leicester and HBOS as well as confectionery and soft drinks group Cadbury Schweppes are due to give trading updates.
Other companies due to report next week are Europe's largest clothes retailer Inditex and the world's largest cruise operator Carnival. German tourism and shipping firm TUI is expected to decide on a package of cost-saving measures at a supervisory board meeting on Thursday.
Airline Lufthansa is due to report November traffic data on Monday, after other big European airlines such as Air France KLM, EasyJet and Ryanair all reported strong growth in passenger traffic for November last week. In the United States investment banks will lead the way on fourth-quarter earnings updates. Lehman Brothers, Goldman Sachs and Bear Stearns are due to report.