* FTSEurofirst 300 up 0.2 percent, within sight of 5-year
* Stays within range ahead of expected cut to Fed's stimulus
* Guidance key to avoid volatility spike - BNP Paribas IP
By Francesco Canepa
LONDON, Sept 18 (Reuters) - European shares hovered near
five-year highs on Wednesday, staying within their weekly range
as investors held fire ahead of an expected first cut to the
Federal Reserve's equity-friendly stimulus programme.
The pan-European FTSEurofirst 300 was up 0.2
percent at 1,255.32 by 1452 GMT, hovering a touch below a
five-year high of 1,262.25 points hit on Monday and well within
its 1 percent range for the week.
Shares slightly trimmed gains in late trade as Republicans
in the U.S. House of Representatives said they would demand the
delay of a health insurance reform if they are to agree to an
increase of the government debt limit, which is needed to avoid
Investors were reluctant to make large directional bets on
indexes before a Fed announcement scheduled for 1800 GMT, when
the bank is expected to unveil a $10 billion cut to its $85
billion monthly asset purchases, which have helped the
FTSEurofirst to rise around 15 percent in the past year.
With a small reduction to the programme now seen as priced
in, any indication about the pace of future reductions to the
programme was likely to set the market's tone for the coming
"If you make it too data-dependent you ... are just fuelling
volatility (in asset prices)," William de Vijlder, chief
investment officer for strategy and partners at BNP-Paribas
Investment Partners, said.
"If you set a timeframe ... to roll back the programme so
that it stops at a certain date, the market would price that
instantaneously and you would not create any volatility."
De Vijlder saw equities as being in a sweet spot at a time
when the global economy showed signs of recovery and the gradual
reduction in the Fed's programme hurts demand for bonds.
Equity investors remained calm in the run-up to the Fed's
announcement, with the Euro STOXX 50 volatility index,
which measures the cost of insuring against future swings in
euro zone blue-chip stocks, up by just 0.2 percent and close to
a recent one-month low.
In a further sign of investors' sanguine view on shares,
demand for put options on the Euro STOXX 50, used by
managers to protect their portfolios against potential falls,
has been fading before September derivative contracts expire on
Atif Latif, director at Guardian Stockbrokers, said only a
cut to stimulus of $15 billion or more would be negative for the
market in the short term.
"A cyclical recovery remains on track and ... even with a
move lower (for equities) this continues to provide an
attractive entry point," he said.