By Elizabeth Howcroft
LONDON (Reuters) - Investors were generally cautious before the Federal Reserve meeting on Wednesday, boosting the yen, as the rally that pushed up shares after Chinese and U.S. economic data in the previous session slowed in early London trading.
Risk appetite was limited ahead of the U.S. Federal Reserve's policy meeting, and its statement at 1800 GMT.
European shares were mixed at the opening, but then rose, with the Stoxx 600 up around 0.3%, pushed up by gains in retail stocks.
The MSCI world equity index, which tracks shares in 49 countries, was up 0.2% at 0724 GMT, while MSCI's main European Index was up 0.3%.
(Graphic: World stocks, https://fingfx.thomsonreuters.com/gfx/mkt/gjnvwjelxpw/Pasted%20image%201600243112184.png)
The Fed is not expected to make changes to its monetary policy at the meeting, which will be its first since it announced that it would pursue average inflation targeting.
Although the economic projections are expected to be somewhat improved from the last round of forecasts in June, Fed Chair Jerome Powell is expected to stick to his message that the road to recovery will be long and uncertain.
"While acknowledging the more rapid improvement in the economic backdrop, we expect the message to remain one of caution," wrote RBC Capital Markets analysts in a note to clients.
"There is no upside for the committee to be positive at this juncture."
Investors will also be watching for U.S. retail sales data, due at 1230 GMT, which is expected to show a robust increase.
London's FTSE 100 lagged other European indexes, down 0.4%, and the pound was down against the euro, weighed down by fears of a disorderly departure from the EU single market.
UK inflation dropped to its lowest rate in almost five years last month, led by a large reduction in meal prices.
"We’ve already started to see the early signs of the unemployment rate starting to edge higher, and with the furlough coming to an end next month and already being tapered, this deflationary wave is likely to get worse in the short term," wrote Michael Hewson, chief market analyst at CMC Markets UK.
The yen hit a two-week high of 105.250 to the U.S. dollar overnight, as investors sought safer assets, and it held close to these levels at 105.325 at 0726 GMT.
Against a basket of currencies, the dollar was a touch weaker, down 0.1% at 93.005 at 0740 GMT.
The euro was up 0.1% at $1.18595.
High-rated eurozone government debt was little changed, with the benchmark German 10-year Bund yield at -0.483%.
Oil prices rose for a second day in a row, with U.S. crude oil hitting one week highs, up 2.4% at $39.21 a barrel at 0746 GMT.
Gold prices rose, up 0.5% at $1964.38 an ounce at 0747 GMT.
Elsewhere, the World Trade Organization ruled that the United States had breached global trade rules with the multibillion-dollar tariffs it imposed during its trade war with China.
The decision had limited market impact as it is only the start of a legal process that could take years.