By Riva Gold 
   -- Dollar extends declines ahead of Fed meeting 
 
   -- Italian stocks, bonds rally on budget deficit compromise 
 
   -- Crude oil stabilizes 

U.S. stocks opened mixed Wednesday ahead of a Federal Reserve meeting that is expected to set the tone for interest rates in 2019.

The S&P 500 fell about 0.07% after closing little changed Tuesday when a steep fall in oil prices dragged down shares of energy companies. The Dow Jones Industrial Average rose about 0.4%

The Stoxx Europe 600 was up 0.6% in afternoon trading as a budget-deficit agreement buoyed shares of Italian lenders, while markets in Asia closed mixed.

The Federal Reserve releases its interest rate decision, statement and projections from its December meeting later Wednesday, marking the last major scheduled event for investors to monitor in 2018.

The outcome of the meeting and the Fed's assessment of the economy will be critical for investor sentiment, market participants say.

"You need to see some calming words, in terms of downgrading [the Fed's]] view on the economy and emphasizing the path forward is data-dependent," said Patrick Spencer, vice chairman of equities at Baird.

With sentiment around markets so negative, "you could see a relief bounce out of this depending on how [Chair Powell] moderates his language," he said.

"You've seen a huge correction [in stocks] -- to me, a lot of the damage has already been done," he added.

The strength of the labor market and broader U.S. economy is expected to keep the central bank on course to raise rates at Wednesday's meeting for the fourth time this year. Fed-fund futures tracked by CME Group suggest a 70% chance of a rate increase at this meeting. Still, the figure is down from 78% a week ago, while signs of a slowdown ahead have put a question market over the pace of rate increases in 2019.

The market has already moved in anticipation of fewer rate rises next year than planned: The ICE U.S. Dollar Index, which tends to move lower when interest rate expectations fall, was down 0.3% Wednesday, bringing its declines this week to 0.7%. Yields on rate-sensitive two-year Treasurys have fallen to 2.65% from 2.97% about a month ago.

Market participants say they will focus on the Fed's tone around the outlook following a rocky stretch for markets and recent criticism from President Trump.

This year, "it really wasn't trade that caused the big pullbacks in the stock market, it was more worries about the Fed," said Jeffrey Kleintop, chief global investment strategist at Charles Schwab.

Mr. Kleintop pointed to February's big selloff when rising wage growth sparked worries about higher interest rates, as well as Chairman Jerome Powell's statement in October that he believed the U.S. economy was "a long way from neutral", referring to the point at which interest rates are neither spurring nor slowing economy growth.

In Europe on Wednesday, shares of GlaxoSmithKline led gains, climbing 7.5% after the company said it would create a consumer health care-focused joint venture with American drugmaker Pfizer.

Italian stocks also drove much of the day's advance, with the FTSE MIB Index up 2% after Italy's finance ministry said it had agreed on a compromise with European Union authorities over the country's budget deficit.

If confirmed, the deal could reduce the Italian government's borrowing costs and limit losses the country's banks have suffered on their large holdings of national debt. Yields on 10-year Italian government bonds fell to 2.77% from around 2.95% Tuesday afternoon, signaling a rise in prices. The FTSE Italia All-Share Banks index was up 3.8%.

Earlier, stocks were mixed in Asian trading, with Hong Kong's Hang Seng inching 0.2% higher while Japan's Nikkei Stock Average fell 0.6% and stocks in Shanghai and Shenzhen fell over 1%.

Energy companies were among the biggest decliners in the region, catching up with steep oil price declines late Tuesday.

Oil prices showed signed of stabilizing Wednesday but remained down sharply this quarter amid mounting worries over global demand and growing supplies.

While lower oil prices are typically considered positive for U.S. consumers, energy companies have become more important to U.S. investment, manufacturing and employment as the country has become the world's largest oil producer.

The S&P 500 energy sector is down 22% this quarter, contributing to the slide in U.S. stocks.

Giovanni Legorano and

Carlo Martuscelli

contributed to this article.

Write to Riva Gold at riva.gold@wsj.com

(END) Dow Jones Newswires

December 19, 2018 09:47 ET (14:47 GMT)