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World stocks were cautiously higher on Wednesday as hopes that a banking crisis would be averted were tempered by uncertainty before a Federal Reserve meeting that sees the central bank caught between taming inflation and maintaining stability.

Data showing British inflation unexpectedly rose to 10.4% in February boosted expectations for a quarter point rate hike at Thursday's Bank of England meeting, lifting sterling.

While London's FTSE stock index dipped, European stock markets more broadly edged higher while Asia-Pacific shares outside Japan added 1.3%.

Japan's Nikkei climbed 2.0% led by a rebound in beaten-down bank stocks.[.T]

Efforts by regulators and policymakers globally to stem banking sector turmoil have helped steam a rout in equity markets but the mood remain fragile. S&P 500 futures and Nasdaq futures edged down.

The spotlight was firmly on the Fed, which concludes a two-day meeting later on Wednesday.

It is expected to raise interest rates by a quarter of a percentage point, a decision that will land amid a brewing political storm over the U.S. central bank's oversight of collapsed Silicon Valley Bank and with the financial world hanging on the words of Fed chief Jerome Powell.

"So far the banking issues are more idiosyncratic than systemic, and a system breakdown has become far less likely in the wake of the extraordinary deposit support announced by the Fed in the wake of the Silicon Valley Bank collapse," said Padhraic Garvey, regional head of research, Americas at ING.

"Plus, delivery of a 25 bps hike still means the Fed is tightening, there is likely at least another hike to come."

QT AND DOT PLOTS

An added complication is whether the Fed temporarily stops selling its holdings of Treasury debt, known as quantitative tightening, and what Fed members do with their dot plot forecasts for future rate hikes.

Having even priced in the risk of a rate cut last week, futures now imply an 86% chance of a quarter-point rise to 4.75%-5.0%. A couple of weeks ago the market had been wagering on a half-point hike.

How Powell navigates all this in his 1830 GMT news conference could determine whether markets succumb to fresh selling or stabilise further.

"It's almost as if we’re seeing Powell flipflop a bit between that slightly less hawkish FOMC meeting in January/February and then his more hawkish appearance before the Senate," said Fiona Cincotta, market strategist at Citi Index.

"In that sense, he does need to be a bit careful about how much he does say, because there is a risk, if you're chopping and changing your tune so frequently of losing credibility with the markets."    

Bond investors will be hoping Powell can instil some calm given the wild volatility of recent days. Two-year Treasury yields were last down about 6 basis points on the day at 4.11%, having made a remarkable round-trip from 5.085% to 3.635% in just nine sessions.

European bonds have gone along for the ride. German two-year yields overnight recording the biggest daily jump since 2008 as markets went back to pricing in more ECB hikes.

In currency markets, sterling rose 0.6% to $1.2295 after the British inflation data.

The euro meanwhile touched a fresh five-week high at $1.0793, benefiting from renewed rate-hike bets.

The dollar index was a touch softer, while the dollar was a touch weaker at 132.41 yen.

In commodities, the mild improvement in risk sentiment saw gold fade back to $1,943 an ounce and away from Monday's top around $2,009. [GOL/]

Oil prices eased after an industry report showed U.S. crude inventories rose unexpectedly last week in a sign fuel demand may be weakening. [O/R]

Brent dipped 46 cents to $74.88 a barrel, while U.S. crude fell 48 cents to $69.19.