A sturdy U.S. recovery is expected to trump global economic worries as the Federal Reserve concludes its last policy meeting of 2014 on Wednesday, with officials likely to signal they are still on track to raise interest rates next year.

With oil prices in freefall, Japan in recession and the euro zone sputtering, the Fed for a second consecutive meeting will weigh the U.S. 

economy's apparent strength against overseas risks that now include a potential currency crisis in oil exporter Russia.

Investors continued looking for safe haven assets in light of Russia's turmoil as Fed officials met for a second day, while fresh data confirmed an expected softening of U.S. inflation.

U.S. consumer prices fell O.3 percent in November, led by the largest decline in gasoline prices since December 2008.

Fed officials have expected a temporary softening of inflation given the big plunge in oil prices, but have indicated signs of strength in the job market elsewhere have left them confident U.S. wages and prices will eventually start to rise.

In addition, the drop in oil prices cuts two ways - threatening economies like Russia that depend on oil exports while providing a boon to consumers. For the United States, lower oil costs are considered an overall plus in the long run, even though they pose an immediate drag on inflation and may trim jobs and investment in the energy industry.

"Russia is going to have absolutely no influence on the Fed whatsoever," said Paul Ashworth, chief U.S. economist for Capital Economics. "The collapse in oil prices is unambiguously good for the U.S. economy."

Attention will focus on just how strongly the Fed voices its faith in U.S. prospects, and in particular whether it drops its longstanding view that it would wait a "considerable time" before raising rates. Most economists expect the phrase to be jettisoned.

With the drop in oil prices likely to slow progress toward the Fed's 2 percent inflation goal, officials face a possible quandary over how to characterize an economy that is growing steadily but showing less evidence of durable wage and price increases.

The recent flow of positive domestic news "is beginning to provide the necessary justification for the Fed to begin consideration of the start of monetary policy tightening," TD Securities economist Millan Mulraine said in a recent note to clients.

Economists expect the U.S. central bank, which has held overnight rates near zero since late 2008, to begin bumping benchmark borrowing costs higher around the middle of next year.

The Fed will issue its policy statement and updated economic and interest rate projections at 2 p.m. ET. Fed Chair Janet Yellen will hold a news conference a half hour later.

In a statement after its last meeting in late October, the Fed largely looked beyond problems in Europe and Japan and expressed confidence the U.S. economy would continue to grow and generate jobs.

Wednesday's statement will provide an indication of whether the economic troubles plaguing Europe and Japan and the threat of a currency run in Russia are likely to delay the Fed's plan to raise rates.

Reuters

U.S. consumer prices recorded their biggest drop in nearly six years in November as gasoline prices tumbled, but that did not change views the Federal Reserve would start raising interest rates in mid-2015.

The Labor Department said on Wednesday its Consumer Price Index (CPI) fell 0.3 percent, the largest decline since December 2008, after being flat in October.

For the 12 months through November, the CPI increased 1.3 percent, the smallest gain since February, after advancing 1.7 percent in October.

Economists who expected the CPI to dip only 0.1 percent from October said Fed officials were likely to shrug off the disinflationary trend as transitory when they issue a statement at the end of a two-day meeting later Wednesday.

"Beside a brief mention about keeping an eye on oil prices, do not expect this inflation report to materially impact today's Fed decision," said Jay Morelock, an economist at FTN Financial in New York.

While inflation is running below the U.S. central bank's target of 2 percent, job growth has shifted into higher gear and the pace of slack absorption in the economy has accelerated in recent months.

The Labor Department report also showed average weekly earnings, adjusted for inflation, recorded their biggest gain in six years in November.

Many economists expect the Fed could signal its intention for a mid-2015 interest rate hike on Wednesday. Such a signal could come through changes to the Fed's so-called forward guidance on rates and new economic projections.

U.S. stocks traded higher, while prices for U.S. Treasury debt fell. The dollar rose against a basket of currencies.

CAUTIONARY NOTE

Plunging crude oil prices, which hit a new 5-1/2 year low this week on increased shale production in the United States and slowing global demand, are keeping overall inflation in check for now.

Underlying price pressures also ebbed a bit after showing some signs of creeping up in October.

Stripping out food and energy prices, the so-called core CPI edged up 0.1 percent after rising 0.2 percent in October. In the 12 months through November, the core CPI rose 1.7 percent after increasing 1.8 percent in October.

Low inflation could still urge caution for the Fed, which has kept its short-term interest rate near zero since December 2008.

"The Fed will be walking a fine line in welcoming the healing effects that falling prices at the pump have on consumer balance sheets, while at the same time acknowledging that no one wants inflation that is too low," said Diane Swonk, chief economist at Mesirow Financial in Chicago.

Gasoline prices have recorded their biggest drop since December 2008. They have now declined for five straight months. Within the core CPI, shelter costs increased 0.3 percent last month after rising 0.2 percent in October.

There were also increases in airline fares, medical care and alcohol prices. But new motor vehicle prices fell as did the cost of household furnishings, apparel and used cars and trucks.

Reuters

Russia's central bank raised its key interest rate to 17 percent from 10.5 percent early Tuesday in an emergency move to halt a collapse in the rouble as oil prices decline and the country's sanctions-hit economy slides toward recession.

The ruble RUB= RUB=EBS strengthened sharply after the decision, recouping some of its heavy losses on Monday, when the currency staged its largest one-day fall since 1998.

Russia has raised the key rate RUCBIR=ECI a total of 11.5 percentage points this year amid market turmoil linked to the Ukraine crisis, and such a high rate will likely further choke economic growth.

"This decision is aimed at limiting substantially increased ruble depreciation risks and inflation risks," the central bank said in a statement.

The outlook for Russia's economy has darkened considerably since the summer as capital flight has soared due to broad-based risk aversion to Russian assets and sanctions restricting Russian companies' access to international capital markets.

That poses a major challenge for President Vladimir Putin, whose popularity, based partly on providing stability and prosperity, is at risk from the ruble's decline, which is damaging Russia's credibility among investors.

The central bank early on Tuesday also increased the maximum volume of foreign currency it provides to Russian banks via its foreign-exchange repurchase agreement auctions for 28 days to $5 billion from $1.5 billion.

It said that in order to strengthen the efficiency of monetary policy, loans secured by non-marketable assets or guarantees for two to 549 days would be provided at a floating interest rate.

The central bank now says the economy is likely to contract in annual terms early next year and that it could shrink by around 4.5 percent in 2015 as a whole if oil prices average $60 a barrel.

Russia's economy still depends in large measure on sales of oil and gas, which account for about two-thirds of exports, despite liberal policymakers calling for structural economic reform for years.

That means swings in global oil prices have a significant impact on Russia's balance of payments, and therefore the rouble exchange rate.

Former Finance Minister Alexei Kudrin wrote on Twitter on Tuesday that the ruble's slide was also due to a lack of trust in the Russian government's economic policies.

Investors took Tuesday's rate hike as positive, saying it showed the central bank's defence of the currency had teeth.

"This is definitely a step in the right direction. The real interest rate right now is significantly positive, 7 to 8 percent," said Jorge Mariscal, chief investment officer for emerging markets at UBS Wealth Management in New York.

"This should make it more difficult to short (the rouble). I think it shows they are really concerned about the speed of the decline in the rouble."

Reuters

 U.S. stocks rose in a volatile Tuesday session as energy shares rallied, and on bets the Federal Reserve will be cautious in removing support in the face of a more fragile global economy.

Futures had crumbled in early trading as the ruble RUB= neared 80 per U.S. dollar. The Russian currency was recently down about 11 percent on the session, near 73 per dollar. Adding to global concerns, data showed factory 

activity shrinking in China and euro zone business growth remaining weak.

However, market participants cited bets on the Federal Reserve's next move in response to a more fragile global economic picture as giving stocks support. The Fed is expected to review whether it will maintain that it expects benchmark rates to remain near zero for a "considerable time."

"Perhaps markets think the Fed will not be as on-schedule on taking out that language," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

She said the market is betting the Fed will give consideration to rapidly changing financial conditions. A Fed statement and news conference are expected on Wednesday.

At 11:22 a.m. EST (1622 GMT) the Dow Jones industrial average .DJI rose 146.74 points, or 0.85 percent, to 17,327.58, the S&P 500 .SPX gained 16.1 points, or 0.81 percent, to 2,005.73 and the Nasdaq Composite .IXIC added 14.69 points, or 0.32 percent, to 4,619.85.

Brent crude LCOc1 lost more than 2 percent to $59.81 per barrel and U.S. crude CLc1 was almost flat.

Energy sector stocks .SPNY, up 2.9 percent, were the largest gainers on the S&P 500.

Prudential's Krosby said investors are looking for a bottom in big energy names to step back into the market.

CVS Health Corp (CVS.N), up 4.2 percent to $93.68, led gains on the S&P 500 after it provided guidance, while 3M (MMM.N) lifted its dividend and was the top gainer on the Dow industrials with a 1.7 percent advance.

Boeing (BA.N), up 2 percent at $124.55, was among the best performers on the day after it raised its dividend and perked up its buyback program.

Advancing issues outnumbered declining ones on the NYSE by 1,696 to 1,236, for a 1.37-to-1 ratio on the upside; on the Nasdaq, 1,498 issues rose and 1,048 fell for a 1.43-to-1 ratio favoring advancers.

The benchmark S&P 500 index was posting 6 new 52-week highs and 39 new lows; the Nasdaq Composite was recording 14 new highs and 143 new lows.

Reuters

Oil fell below $59 a barrel for the first time since May 2009 on Tuesday, extending a six-month selloff as slowing Chinese factory activity and weakening emerging-market currencies added to concerns about demand.

International benchmark Brent crude has almost halved since reaching a 2014 high of $115 a barrel in June. Ample supply, slowing demand and a switch in strategy by exporter group OPEC to defending market share rather than prices have all hit crude prices.

A report showing Chinese industrial activity shrank for the first time in seven months in December added to concern about oil demand. China is the second-largest oil consumer after the United States.

Brent crude LCOc1 fell as low as $58.50, its weakest since May 2009. As of 1442 GMT it was down $2.05 at $59.01 while U.S. crude CLc1 was down $1.86 at $54.05 a barrel.

"The trend remains down," said Robin Bieber, technical analyst and director at London-based oil broker PVM Oil Associates. "It is not advised to be long."

The Organization of the Petroleum Exporting Countries declined to cut production at a Nov. 27 meeting and, despite slumping prices, major Gulf OPEC members have since shown no sign of reversing course, seeing no need for an emergency OPEC meeting.

Russia's energy minister also said on Tuesday his country will not cut production. Before OPEC's meeting Russia, not an OPEC member, had hinted it could cut supply if OPEC did the same.

Weakening emerging-market currencies and economies - the drivers of growth in global oil demand - also weighed on prices, analysts said.

In Russia, one of the world's largest oil producers, the central bank hiked its key interest rate by 6.5 percentage points to 17 percent on Tuesday in an attempt to halt a collapse in the rouble.

In India, the Reserve Bank has been intervening in support of the struggling rupee, triggered by a worsening trade deficit, and in Indonesia the rupiah dropped to its lowest in 16 years against the U.S. dollar.

"The sharp decline in nearly all commodity prices and the weakening in commodity currencies creates headwinds for oil demand in the commodity-producing emerging markets in Latin America and the Middle East," Goldman Sachs said in a report.

"Historically these regions didn't contribute much to oil demand, today they do."

Reuters

U.S. stocks dipped on Monday as initial gains vanished, as did a brief rebound in crude oil prices.

Brent LCOc1 and U.S. crude CLc1 had briefly rebounded after having hit fresh 5-1/2 year lows earlier in the day, only to turn lower again.

Still, energy shares were the top performers of the benchmark S&P 500 index as investors sought bargains among the bigger names.

 Four of the largest five energy sector components in terms of market capitalization were up on the day.

"You had some traders take profits on the early gains once oil moved to negative," said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.

Energy stocks "have dropped so much, you see bottom fishing in the big names but smaller companies continue to move lower," he said, referring to a search for value among bigger stocks.

At 10:48 a.m. EST (1548 GMT), the Dow Jones industrial average.DJI fell 11.85 points, or 0.07 percent, to 17,268.98, the S&P 500 .SPX lost 1.38 points, or 0.07 percent, to 2,000.95 and the Nasdaq Composite .IXIC dropped 17.33 points, or 0.37 percent, to 4,636.27.

U.S. manufacturing output recorded its largest increase in nine months in November as production expanded across the board, pointing to underlying strength in the economy. The New York Federal Reserve's gauge of manufacturing in the area turned negative in December for the first time in almost two years.

Shares of pet supply retailer PetSmart (PETM.O) rose 4.2 percent to $80.96 after it agreed to be bought by a private equity consortium led by BC Partners Ltd for $8.7 billion, in the largest leveraged buyout of the year.

Workers at Amazon (AMZN.O) warehouses in Germany began a three-day strike for better pay and work conditions as the online retailer raced to ensure holiday orders are delivered on time. Amazon shares were down 1.5 percent at $302.72.

Nasdaq (NDAQ.O) said Friday it would add American Airlines Group (AAL.O), Electronic Arts (EA.O) and Lam Research (LRCX.O) to the Nasdaq 100 .NDX, and remove Expedia (EXPE.O), F5 Networks (FFIV.O) and Maxim Integrated Products (MXIM.O). Changes are scheduled to take effect Dec. 22 before the market opens.

Declining issues outnumbered advancing ones on the NYSE by 1,812 to 1,078, for a 1.68-to-1 ratio; on the Nasdaq, 1,570 issues fell and 995 advanced for a 1.58-to-1 ratio.

The benchmark S&P 500 index was posting 10 new 52-week highs and 16 new lows; the Nasdaq Composite was recording 29 new highs and 84 new lows.

Reuters

Brent crude oil hit a fresh five-year low close to $60 a barrel on Monday after producer group OPEC restated its determination not to cut output despite a global fuel glut, but the North Sea benchmark later rallied to above $62.Market momentum appeared to be downwards, with analysts saying oil could plumb new depths before a sustained recovery.

Oil prices have collapsed over the last six months as high-quality, light crude from North America has overwhelmed demand at a time of lacklustre global economic growth.

The Organization of the Petroleum Exporting Countries has kept production steady, worried that any reduction in its output would have little impact on price and instead mean surrendering market share.

"The decision has been made. Things will be left as is," OPEC Secretary-General Abdullah al-Badri told a conference in Dubai on Sunday. "We agreed that it is important to continue with production (at current levels) for the ... coming period."

Brent for January LCOc1 fell to a low of $60.28 a barrel in Asian trade, down $1.57 and its lowest since July 2009. The futures contract then rallied to trade around $62.20 by 1450 GMT, up 35 cents from Friday's close.

U.S. crude for January CLc1 was trading at $57.50 a barrel, down 31 cents, after hitting a low of $56.25 earlier in the day - its weakest level since May 2009.

Analysts said prices had made a partial recovery on Monday due to speculative buying and after news that Libya's two biggest oil ports had shut due to fighting between armed factions allied to the country's two rival governments.

"The market may just have moved down too far too quickly today," said Tamas Varga, energy analyst at London brokerage PVM Oil Associates. "It was a bit overdone and people may be 'bottom-picking'."

Spreadex financial analyst Connor Campbell said Monday's rally was "no signifier of renewed health in the black stuff".

"Oil has found it notoriously difficult recently to hang onto any gains," Campbell said.

Analysts have cut oil price forecasts sharply over the last few weeks.

"Oil prices may move below $60 per barrel in the near term," analysts at Barclays Bank said, but added that "this (level) is not sustainable in the long run".

Barclays said it expected Brent to average $67 per barrel in the first half of 2015 and $78 in the second half of next year.

Reuters

Merck & Co Inc (MRK.N) said it would buy Cubist Pharmaceuticals Inc (CBST.O) for $8.4 billion plus assumption of debt, giving the major drugmaker an entry into the market for drugs that combat so-called superbugs.

The deal is the latest sign that large pharmaceutical companies are turning their attention back to antibiotics after decades of low investment.

The spread of superbugs that evade even the most powerful antibiotics threatens modern medicine, the World Health Organization said in April, warning of "a post-antibiotic era" in which common infections were killers once again.

The U.S. Centers for Disease Control and Prevention estimated last year that more than 2 million people in the United States are sickened every year by superbug infections, with at least 23,000 dying as a result.

Merck said on Monday that the deal, which will give it access to Cubist's antibiotic Cubicin, is expected to add more than $1 billion to revenue in 2015 after closing in the first quarter, but will be neutral to non-GAAP earnings per share until 2016.

Cubist's third-quarter sales rose 16 percent, driven by strong sales of Cubicin.

The company's lead drug in development, Ceftolozane/Tazobactam, is widely expected to win marketing approval from the U.S. Food and Drug Administration later this month as a treatment for complicated urinary tract infections.

Merck will pay $102 per share for Cubist, a premium of 37 percent to the Lexington, Massachussetts-based company's closing share price of $74.36 on Friday.

The deal includes assumption of $1.1 billion in debt.

"Cubist is a global leader in antibiotics and has built a strong portfolio of both marketed and late-stage pipeline medicines," Merck CEO Kenneth Frazier said in a statement.

"Combining this expertise with Merck's strong capabilities and global reach will enable us to create a stronger position in hospital acute care while addressing critical areas of unmet medical need, such as antibiotic resistance."

Merck has said it is focusing on acute care within hospitals - considered a hotbed for superbug infections such as bacterial pneumonia - as a top priority.

Many drugmakers have cut investment in the past because antibiotics are typically low-priced and used for only short periods, generating poor returns. That has fueled demands for a rethink of the antibiotic market model.

It has also left Cubist as a leading investor in the field, with an annual research budget for antibiotics of $400 million.

More recently, however, there have been signs of a revival, with Roche Holding AG (ROG.VX), GlaxoSmithKline Plc (GSK.L) and Sanofi SA (SASY.PA) all investing in new approaches to fight superbugs.

Cubist shares were trading at $101.04 premarket. Merck shares were unchanged from Friday's close at $61.50.

The New York Times, citing people briefed on the matter, first reported the deal on Friday.

The Cubist deal is Merck's second big acquisition this year. The company bought Idenix Pharmaceuticals for $3.85 billion in June to boost its hepatitis C drug portfolio.

Reuters

McDonald's Corp on Monday reported a steeper-than-expected drop in global sales at established restaurants in November, hurt by weakness in the United States and Asia, and warned that such results would "significantly pressure" margins in the current quarter.

November marked the sixth straight month of worldwide same-restaurant sales declines at McDonald's, which is battling changing consumer tastes, tough U.S. competition, the after-effects of a supplier scandal in Asia and economic and political turmoil in Europe.

Worldwide sales at restaurants open at least 13 months were down 2.2 percent in November, more than the 1.7 percent decline expected by analysts polled by research firm Consensus Metrix.

Shares in McDonald's were down 3.5 percent to $92.97 in early trading on the New York Stock Exchange.

Chief Executive Officer Don Thompson, who took the helm in July 2012, has shaken up management and is giving more power to local operators in a bid to improve results.

Despite that, U.S. sales at restaurants open at least 13 months tumbled 4.6 percent in November. Analysts, on average, were expecting a decline of 1.9 percent.

McDonald's U.S. same-restaurant sales have not increased since October 2013, in part due to competition from smaller and more nimble direct rivals ranging from Wendy's Co and Burger King Worldwide Inc to In-N-Out Burger and Chick-fil-A.

The company is localizing U.S. menus and putting greater focus on customization and fresh ingredients as it also seeks to better compete with popular chains like Chipotle Mexican Grill Inc and Subway, where diners pick the ingredients that go into their meals.

The stronger U.S. dollar also is expected to reduce fourth-quarter profit by as much as 9 cents per share, McDonald's said on Monday.

Same-restaurant sales fell 4 percent in the Asia/Pacific, Middle East and Africa (APMEA) unit last month. That division has not yet recovered from a China meat supplier scandal that drove away diners and sent restaurants scrambling to find new sources of ingredients for its Chicken McNuggets and Big Macs.

The company said the weak APMEA results could cut McDonald's profits by as much as 10 cents a share in the current quarter that ends on Dec. 31.

Europe's same-restaurant sales were down 2 percent in November, hurt by "very weak" results from Russia and declines in France and Germany.

Reuters