By Jeremy Gaunt, Reuters European Investment Correspondent
World stocks were generally weaker on Wednesday and Wall Street looked set for losses as investors shuffled positions ahead of a highly anticipated Jackson Hole speech by Federal Reserve Chairman Ben Bernanke.
The mood in Europe was not helped by the Ifo survey showing German business morale posting its steepest drop since the aftermath of the Lehman Brothers collapse in late 2008.
Japanese shares sold off following a Moody's downgrade.
Tokyo's Nikkei average closed down more than 1%. Overseas investors in particular reacted negatively to Moody's Investors Service's downgrade of Japan's sovereign debt rating.
The yen was slightly stronger against the dollar after Japan unveiled a $100 bln credit line to help companies deal with the impact of recent currency strength but failed to intervene in the market.
In Europe, investors were balancing the possibility of more stimulus being announced by Bernanke in the Wyoming resort town on Friday against chanced of being disappointed.
U.S. stocks shot up 3% on Tuesday on speculation Bernanke would signal new help, but many investors are sceptical that he will deliver, given the Fed's recent pledge to keep rates near zero and the political difficulties of taking action as a presidential election year approaches.
"We think most people aren't looking for (a third quantitative easing programme) and are more bent towards an operation twist where the Fed would increase the maturity of its portfolio by buying longer-term assets," said Kiran Kowshik, currency strategist at BNP Paribas.
Investors are looking for additional action from the Fed because the U.S. and euro zone economies appear in danger of sliding into recession. It is also the one-year anniversary of Bernanke's telling the market that a new round of quantitative easing, or QE2, was on the way.
World stocks as measured by MSCI were down 0.1% for a 10.3% year-to-date loss.
The pan-European FTSEurofirst 300 was flat.
NARROW RANGES
The dollar hovered near record lows against the yen after the measures taken by Japan to help companies. Generally, concerns over the health of the global economy kept investors sensitive to risk.
Major currencies were largely confined to tight ranges as markets sat tight ahead of the Bernanke speech.
The dollar was down 0.2% against a basket of major currencies .
On bond markets, core euro zone sovereign bond prices fell. Some tension returned to the peripheral sector with Greece's yield hitting a record 42%.
