(Alliance News) - Stocks in London are set to open lower on Thursday, returning some of Wednesday's gains that followed a surprisingly tame UK inflation reading.

IG says futures indicate the FTSE 100 to open down 41.8 points, 0.5%, at 7,673.88 on Thursday. The index of London large-caps closed up 77.65 points, 1.0%, at 7,715.68 on Wednesday.

Sentiment got a boost from a cooler-than-expected UK inflation print, with investors moving to price in at least two 25-basis-point interest rate cuts by the Bank of England next year. This put pressure on the pound, which slipped further against the dollar in early exchanges in Europe.

Sterling was quoted at USD1.2638 early Thursday, lower than USD1.2673 at the London equities close on Wednesday.

However, after Wall Street had a strong run and pushed fresh highs in anticipation of rate cuts in the US as well next year, optimism hit a ceiling, with equities retreating on Wednesday.

"The shares of FedEx, often regarded as an economic barometer, took a hit after disappointing results," noted SPI Asset Management's Stephen Innes. The logistics stock closed down 12% on Wednesday in New York.

The Dow Jones Industrial Average ended down 1.3%, the S&P 500 down 1.5% and the Nasdaq Composite down 1.5%.

Investors now are looking ahead to the key US personal consumption expenditures price index print on Friday, which is the Federal Reserve's preferred metric of inflation.

The dollar was mixed. The euro traded at USD1.0946, lower than USD1.0968. However, the dollar was lower against the yen, quoted at JPY142.93, down versus JPY143.75.

In early UK company news, Bloomberg reported that Swisscom is weighing an offer for Vodafone's Italian business early next year, potentially countering a rival bid from Iliad for the unit.

Citing people familiar with the matter, Bloomberg reported that the possible deal would combine Vodafone’s mobile service with Swisscom's Fastweb fiber broadband carrier in the country.

Swisscom and Vodafone are in talks to discuss the terms and a formal bid could be announced as soon as next month, they said.

In Japan on Thursday, the Nikkei 225 index in Tokyo closed down 1.6%, with Toyota shares losing 4.0% amid more bad news for the country's largest carmaker.

Japanese officials on Thursday started an on-site inspection at the headquarters of Toyota subsidiary Daihatsu, the transport ministry said, after an investigation found it had rigged safety tests and was forced to suspend all shipments of its vehicles.

The independent probe found the malpractice dated back to 1989 and led Toyota to express its "sincere apologies" and pledge to carry out "a fundamental reform".

The losses were also spurred by news that the world's biggest carmaker was recalling around a million Toyota and Lexus vehicles in the US, citing concerns about their airbag systems.

In China, the Shanghai Composite index was up 0.6%, while the Hang Seng index in Hong Kong was marginally higher. The S&P/ASX 200 in Sydney closed down 0.5%.

Gold was quoted at USD2,035.40 an ounce early Thursday, up slightly from USD2,034.50 on Wednesday.

Brent oil was trading at USD79.69 a barrel, lower than USD80.44.

In Thursday's UK corporate calendar, Carnival and JPMorgan Indian Investment Trust post half-year results.

The economic calendar has UK public sector borrowing figures due shortly, with gross domestic product data out for the US later in the day.

By Elizabeth Winter, Alliance News deputy news editor

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