European markets cautious ahead of ECB policy meet (Reuters)

European stocks edged up in early trading but traders remained cautious as the European Central Bank (ECB) looks set to slash its outlook for the eurozone economy.

Europe's FTSEurofirst 300 index of major European stocks was up 0.24 percent to 1,126.77 points while the eurozone's Eurostoxx 50 edged 0.3 percent higher to 2,601.99. Italy's FTSE MIB gained 0.3 percent while France's CAC-40 was up 0.28 percent. Germany's DAX and Spain's IBEX 35 gained 0.17 and 0.12 percent.

The single currency eased from its seven-week high against the greenback and an almost eight-month peak against the Japanese yen.

ECB officials are set to meet for this year's last policy review later in the day. Analysts expect the lender to slash its economic forecast for 2012 and 2013 as the debt crisis continues to hurt the bloc's member states. It is likely to refrain from further interest rate cuts for the moment after reducing the rates to record lows and introducing bond buyback plans in September. But investors will be keeping a close watch for hints of more measures in the future.

Asian Markets Mixed

Asian markets had earlier ended mixed with the Japanese index hitting a seven-month high on the yen's continued weak run against the dollar on monetary easing hopes. Chinese stocks dropped after the strongest rally in three months on Wednesday.

The Nikkei average gained 0.81 percent to 9545.16 while South Korea's KOSPI jumped to a seven-week high, ending 0.13 to 1949.62. China's Shanghai Composite Index fell 0.13 percent to 2029.24. Hong Kong's Hang Seng slipped 0.07 percent to 22254.60 towards close.

Political news in Japan ahead of the country's election on 16 December boosted the local market. A Nikkei poll showed that the Liberal Democratic Party (LDP) is likely to muster a majority to take office next. The LDP and its leader Shinzo Abe are known for their view that the Bank of Japan must introduce further monetary easing measures to boost the country's lagging economy.

The yen extended its losses, pushing exporter stocks up. Shares of electronic major Sony were up 3.42 percent while those of Honda and Toyota gained 1.55 and 1 percent.

The deadlock over the "fiscal cliff" crisis in the US continued to remain in focus as investors kept a close watch on comments from lawmakers. In the latest, President Barack Obama has said that a solution to the impending $600 bn automatic spending cuts and tax hikes could be reached in a week if the Republicans are willing to compromise on the taxes. Although fears of the proposed measures pushing the economy into recession linger, traders remain optimistic that the leaders will find the middle ground before time runs out.

Chinese investors returned to the cautious mode, breaking a one-day rally that took the markets to a three-month high in the previous session. In its first economic assessment after the recent leadership change, the Chinese government said that it will continue to take up reforms to keep the economy stable. But analysts feel that the outlook for local stocks remain weak as investors remain wary of their performance in the coming year.