GLOBAL MARKETS-Global stocks hold steady ahead of Fed decision, earnings from AI stalwarts

By Amanda Cooper

LONDON/NEW YORK, Oct 28 (Reuters) - Global stocks were little changed on Wednesday ahead of what is expected to be an action-packed US afternoon featuring a Federal Reserve policy decision and earnings from two titans of the AI buildout, Microsoft MSFT.O and Alphabet GOOGL.O.

Market moves were mostly modest on Wednesday outside of Asia. New Zealand's central bank surprised investors by leaving interest rates on hold, contrary to expectations for a hike, triggering the biggest daily drop in the currency in seven months , while the Bank of Canada raised rates for the first time in three years.

The Canadian dollar was little changed. The European Central Bank and Bank of Japan are expected to issue policy decisions this week as well.

US stocks opened narrowly mixed, with the Nasdaq .IXIC down a tad and the S&P 500 .SPX a little higher. Overnight, stocks in Asia rallied, led by a 6% surge in South Korea's Kospi .KS11 after blockbuster earnings from chipmaker SK Hynix 000660.KS.

Europe's STOXX .STOXX index was up fractionally despite declines in shares of banks Santander SAN.MC and UBS UBSG.S and payments company Adyen ADYEN.AS. MSCI's All-World index .MIWD00000PUS was up modestly.

The AI rally faces its next test after the market close on Wednesday, when technology giants Alphabet and Microsoft are due to report earnings. Investors will be looking out for signs of changing trends in capital spending, the driver of the AI boom, and scouring for evidence of returns that would justify the hefty cost of the AI build-out.

"Investors want to see how these two mega-cap tech stocks are monetising their AI investments," XTB director Kathleen Brooks said.

"These results could determine if the tech/AI rally has legs. Any signs of 1, a failure to monetise investments, or 2, a slowdown in capex spend, could have big repercussions for the AI trade on Wednesday night and Thursday," she said.

A series of AI-related funding announcements from Meta META.O, SpaceX SPCX.O and Broadcom AVGO.O this week has once again tested the market's willingness to pay for further building, though Anthropic's filing for an initial public offering showed results that many investors regarded as stronger than expected, providing support.

"Not all big tech stocks should be treated equally regarding future potential growth. The period of a rising market lifting all stocks has started to shift," said Chris Brigati, SWBC's chief investment officer.

CENTRAL BANKS IN THE SPOTLIGHT

Expectations are for the Fed to keep rates unchanged, though analysts at JPMorgan said in a note they anticipate at least two dissenting voices from US policymakers, which could send a hawkish signal to markets.

Earlier on Wednesday, the Reserve Bank of New Zealand surprised investors by keeping interest rates at 2.75% in a narrow vote, sending the kiwi down more than 1.3%, in its largest one-day fall since mid-March.

"Today's decision shows the RBNZ is willing to surprise markets, a reminder that central banks do not take orders from markets," Carol Kong, a currency strategist at Commonwealth Bank of Australia, said.

In the UK, finance minister John Healey delivered a cautious first budget, one that prioritised stability in the bond market over the kind of big spending moves that Andy Burnham talked about when he became prime minister. Britain's stocks, bonds and currency barely reacted to the statement, in which he pledged to stick to fiscal ​rules, while accepting a smaller fiscal cushion due to rising energy prices ‌and borrowing costs.

The pound was down a touch at $1.3293, while UK government bond yields edged up 2 basis points to 5.363%, as prices dipped. Gilt yields are heading for their first monthly decline since June this month, down 7 bps.

Israel's shekel fell 2.2%, set for its largest daily fall in about 16 months, as election results showed Prime Minister Benjamin Netanyahu's right-wing bloc performing more strongly than expected, but still falling short of a parliamentary majority.

Elsewhere, oil prices rose after an attack on a refinery in Saudi Arabia, the world's biggest crude exporter, renewed concerns around the risks to supply in the Middle East. O/R

Brent crude futures were up 1.1% at $115.13 a barrel, while European natural gas futures rose to fresh four-year highs, up another 3.3% at €99.2 per MWh.