Sensex, Nifty Seen Tad Higher In Cautious Trade As China Deflation Risks Build

(RTTNews) - Indian shares look set to open higher on Wednesday despite weak cues from global markets.

Volatility is not ruled out amid fresh worries about the U.S. banking system and ahead of U.S. inflation readings due this week that could influence the Fed's rate outlook.

The RBI's monetary policy committee (MPC) is expected to maintain key rates when it meets on Thursday, but the central bank might adopt a far more hawkish tone amid the recent sharp rise in vegetable and pulses prices.

Benchmark indexes moved in a tight range before ending marginally lower on Tuesday. The rupee fell by 10 paise to close at 82.84 against the dollar.

Asian markets were mixed this morning and Treasury yields dropped after data showed Chinese consumer inflation shrank in July and producer prices fell more than expected, in a sign of deepening deflation.

The dollar held steady after reaching its highest level in over a month the previous day amid safe haven demand on worries about the health of U.S. and Italian banks. Gold hovered near one-month low while oil edged lower after ending Tuesday's choppy session higher on geopolitical tensions.

U.S. stocks ended firmly in the red overnight as China trade data disappointed and Moody's cut the credit ratings for 10 smaller and midsized lenders and put the credit ratings of six large U.S. banks under review for a possible downgrade.

The Dow dipped half a percent, the S&P 500 shed 0.4 percent and the tech-heavy Nasdaq Composite gave up 0.8 percent.

European stocks fell notably on Tuesday, with banks leading losses after Italy approved a 40 percent windfall tax on lenders.

The pan European STOXX 600 eased 0.2 percent. The German DAX lost 1.1 percent, France's CAC 40 fell 0.7 percent and the U.K.'s FTSE 100 declined 0.4 percent.