[MILAN] Political jitters hit Italian stocks on Wednesday and the broader European market slipped lower before a Federal Reserve meeting that could provide more clues on future interest rate moves in the United States next year.

Italy's parliament will be dissolved between Christmas and the New Year with national elections probably set for March 4, a parliamentary source said on Wednesday.

Concern that no clear majority will emerge caused Italy's FTSE MIB index to fall 1.4 per cent Sovereign Italian bonds also fell.

Italian banks, which have large exposure to government debt, fell 2.9 per cent, their biggest one-day fall since May. Losses by UniCredit also weighed on stocks.

The pan-European Stoxx 600 benchmark fell 0.2 per cent, euro zone blue chips dropped 0.5 per cent and UK's FTSE slipped less than 0.1 per cent.

The Fed is widely expected to raise US interest rates later on Wednesday, but the focus will be on its plans for further rises next year. The pace at which the Fed and other central banks will tighten monetary policy is considered a key factor in extending the current bull market into 2018.

The Stoxx 600 is up 8 per cent so far this year and Italy's FTSE MIB has gained 18 per cent and is on track to be the best performer among top European indexes.

In spite of political uncertainty, Banca IMI analysts expect the FTSE MIB to rise another 13 per cent by the end of 2018 and say the Italian market is still undervalued.

Elsewhere, Innogy slumped 13 per cent after the German energy company trimmed its operating profit forecast for 2017, citing a difficult market for npower, its British retail energy supply business. Its parent, RWE, also fell 13 per cent.

Swedish builder NCC fell 8.9 per cent after it warned on Wednesday its operating earnings for the fourth quarter would be "close to zero".

Supermarket group Colruyt declined more than 7 per cent fall after Barclays cut its target price for the stock.

Aurubis, Europe's biggest copper smelter, slid 2.6 per cent on disappointing earnings.

In the UK, industrial-equipment hire company Ashtead gave back its gains of the previous session, losing more than 5 per cent after Citi cut its rating for the stock.

Electrical goods and mobile phone retailer Dixons Carphone was the best performer, adding more than 8 per cent after reporting record Black Friday sales.

Zara fashion chain owner Inditex rose by 1.7 per cent after reporting net profit to September of 2.3 billion euros, a 6 per cent gain.

REUTERS