By Sruthi Shankar
(Reuters) -European stocks edged higher on Wednesday, lifted by Renault (EPA:RENA) on talks of a potential merger between Japan's Honda (NYSE:HMC) and Nissan (OTC:NSANY), though gains were capped on caution ahead of the Federal Reserve's policy decision and outlook.
The pan-European STOXX 600 was up 0.1% by 0925 GMT, while stocks in Asia were also in a wait-and-watch mode.
French carmaker Renault rose 6%, leading gains on the STOXX 600, after a report of a possible tie-up between Japan's top carmakers. Renault owns a 36% stake in Nissan.
The Fed is widely expected to cut rates by 25 basis points (bps) later on Wednesday, in what some observers are calling a "hawkish cut", set to be delivered alongside policymakers' updated interest rate outlooks and economic forecasts.
U.S. Treasury yields have, meanwhile, climbed to multi-week highs, weighing on global stocks recently, as investors scaled back bets on the pace of Fed rate cuts next year.
"Recent macro data suggest (U.S.) economy activity remains resilient, that the softening of the labor market is contained and that progress on disinflation has stalled over the last few months," Unicredit (BIT:CRDI) analysts said in a note.
"It likely means that a slower (the new buzzword is "gradual") pace of rate cuts lies ahead, which we anticipate will mean one 25bp cut per quarter in 1H25 while data dependence is maintained."
The UK's FTSE 100 rose 0.4% on Wednesday as sterling came under pressure ahead of the Bank of England's (BoE) rate decision on Thursday, where it is expected to keep rates on hold.
British inflation hit an eight-month high in November, but the rise in services prices - watched closely by the BoE as an underlying measure of inflationary pressures - held steady, offering the central bank a little bit of relief.
Among other stocks, Commerzbank (ETR:CBKG) jumped 3.3% after Italian bank UniCredit said it had raised its potential stake in the German lender to 28% by signing new derivatives contracts.
British fintech firm Wise (LON:WISEa) advanced 4.2%, touching a more than three-year high.
Grenergy surged 19.2% after the Spanish renewables company agreed to sell an asset portfolio in Chile to ContourGlobal, a KKR company, for an enterprise value of $962 million.