Europe midday: Budget battles in focus across the Continent

The focus in Europe continues to be on the running budget battles across the Continent, with the spotlight on Wednesday squarely on Italy, as investors wait for the US central bank's policy announcement scheduled for later in the day.

On Tuesday, a government source had told Reuters that the ruling coalition in Rome was ready to commit to a public deficit target of below 2.0% of gross domestic product, sparking buying in the country's sovereign bonds.

Meanwhile, in Germany, markets were digesting the unexpected ouster of German Chancellor, Angela Merkel's choice for caucus leader, her deputy Volker Kauder, who was defeated by Ralph Brinkhaus, a well-known fiscal hawk.

To take note of, Merkel is on the more dovish side within the European Union when it comes to Brexit and a key supporter of proposed reforms of the euro area's architecture, including financial back stops for the single currency bloc.

As of 1249 BST, the benchmark Stoxx 600 was up by 0.04% or 0.16 points to 384.05, alongside a 0.31% or 16.77 point advance for the French Cac-40 to 5,495.89, while Germany's Dax was trading lower by 0.20% or 24.35 points to 12,350.37.

Auto&Parts were among the worst performers, with the corresponding Stoxx 600 sector gauge retreating by 0.65% to 535.72 in the wake of German carmaker BMW's profit warning the day before.

Regarding Wednesday's US central bank policy decision, Michael Hewson at CMC Markets said: "If the FOMC is particularly aggressive in terms of its rate outlook, and in terms of its assessment of the health of the US economy, then we could well see further US dollar strength in emerging market currencies.

"Recent comments from Fed governor Lael Brainard, normally a fairly dovish voice on the FOMC, would appear to suggest the Fed is more worried about inflation and the economy running too hot than the risks of a trade war. A more hawkish turn could be the added push 10-year yields need to push above the 3.12% peaks we saw earlier this year, in turn heaping further pressure on emerging market debt costs."

Shares of Santander were edging higher by 0.40% after UBS's head of investment banking, Andrea Orcel, was selected as the Spanish lender's new chief, stoking talk of possible new acquisitions or a move into investment banking and wealth management.

INSEE's French consumer confidence gauge for the month of September came in at 94.0, which was down from 96.0 for the previous month.

"These data are consistent with Mr. Macron’s rapidly declining approval rating," said Claus Vistesen at Pantheon Macroeconomics.

"French households have been hit by a number of headwinds this year: higher headline inflation and front-loaded tax hikes have dented real wage growth, uncertainty over labour market reforms, and the expiry of government sponsored job contracts have increased fears of unemployment, and transport strikes have been a nuisance for commuters."