European shares rise as oil rally pauses ahead of Fed decision

By Sudeshna Ghoshal

Sept 16 (Reuters) - European shares edged higher on Wednesday after two sessions of declines as a pause in the recent rally in oil prices restored risk appetite ahead of the U.S. Federal Reserve's monetary policy decision.

The pan-European STOXX 600 .STOXX was up 0.2% at 635.56 points, as of 0838 GMT.

Attention will be on the Fed decision later in the day, with markets pricing in a 93% chance of a 25-basis-point interest rate hike, according to the CME's FedWatch tool, a first under Fed Chair Kevin Warsh.

"Fed Chair Warsh is not a fan of forward guidance... which does mean that there will be a lot of focus on updated projections for growth and inflation," said Fiona Cincotta, senior market analyst, StoneX.

Inflation concerns linked to the Iran conflict have prompted investors to reassess rate expectations, lifting global bond yields and weighing on risk assets.

The yield on the U.S. 10-year Treasury bond held steady at 5% after breaching the mark earlier this week.

Oil prices took a breather on Wednesday, shedding nearly 1%, following an unexpectedly large build in U.S. crude inventories, despite lingering supply disruptions. O/R

European banking stocks .SX7P were among the biggest gainers early in the day, rebounding from a slump on Tuesday when shares dragged the STOXX 600 to a three-month low.

Investors also parsed comments from U.S. bank executives at a Barclays conference. JPMorgan Chase JPM.N said it expects strong growth in investment banking fees and trading revenue in the third quarter, contrasting with comments from Bank of America CEO Brian Moynihan on Monday.

As JPMorgan carries significant weight in the sector, "the market listened when JPMorgan spoke," StoneX's Cincotta said.

In Europe, shares of Barclays BARC.L and Standard Chartered STAN.L rose 1.8% and roughly 2%, respectively.

Separately, data showed British inflation accelerated to 3.1% in August from 2.9% in July, a day before the Bank of England's policy decision. The central bank is expected to hold rates steady.

Britain's FTSE 100 .FTSE gained 0.2%.

Among individual stocks, Soitec SOIT.PA jumped to the top of the STOXX 600 with an 11.9% rise after J.P. Morgan upgraded the chip-materials maker stock to "overweight" from "neutral".

Barratt Redrow BTRW.L rose 8.4% after the company reported adjusted pre-tax profit of £572.8 million ($771.50 million) for the year, ahead of market expectations. However, the company trimmed its home completions target for fiscal 2027, citing planning delays and fewer sales outlet openings.

Pan African Resources PAFR.L gained 4.5% after the miner said its revenue more than doubled in 2026.

Shares of Babcock International BAB.L were flat after the British defence and engineering group retained its annual forecast.

($1 = 0.7424 pounds)