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On Tuesday, a better-than-expected report on US house builder confidence and inflation data suggesting low but stable price growth, supported the view that economic conditions are adequate for the US central bank to start scaling back its $85 billion monthly bond-buying.
A majority of economists polled by Reuters expect the taper to happen in March, but a recent run of upbeat economic data has steadily shortened the odds on a taper announcement at the end of the Fed meeting later in the day -- or in January.
"The market-neutral decision is a January taper," Citigroup said in a note. "A nominal taper (on Wednesday) would catch 60% of the market by surprise -- and FX positioning remains overweight emerging market FX."
"For traders, this is still US dollar-positive, but the sustainability of USD strength depends on any language changes we expect to accompany it."
The Federal Open Market Committee will release a policy statement at 1900 GMT, followed by Fed Chairman Ben Bernanke hosting a keenly-awaited news conference a half hour later.
MSCI's broadest index of Asia-Pacific shares outside Japan inched up 0.2%, though still faced resistance at its 200-day moving average. On Tuesday, it trimmed early gains to end flat.
Tokyo's Nikkei climbed 2% to a one-week closing high as hedge funds bet that whatever the Fed outcome was it would have little impact on the outlook for Japan, which remains on an ultra-loose policy path.
The Nikkei has risen 50% this year, on track to its best yearly rise since 1972, powered by Tokyo's bold fiscal and monetary stimulus to revive the world's third-largest economy.
European shares were expected to open up as much as 0.3% on Wednesday, according to financial bookmakers, ahead of Germany's Ifo business sentiment survey.
Overnight, US stocks closed slightly lower, with the S&P 500 down 0.3%, as investors were reluctant to make big bets before the Fed decision. S&P 500 E-mini futures added 0.2% in Asian trade on Thursday.
EMERGING WARY
As the Fed decision loomed, Indonesia's rupiah fell to a five-year low of 12,175 per dollar, while the Philippine peso dropped 0.3% to 44.13 to the dollar and the Thai baht eased 0.5% to 32.25, hitting a one-week low.
"We are bearish on those currencies held back by weak or deteriorating current account positions, inflation challenges and, in some cases, poor internal debt dynamics," Morgan Stanley analysts wrote in a report.
Those currencies included Brazilian real, Indonesian rupiah, Russian ruble, though it was upbeat on Polish zloty, Korean won and Mexican peso.
But with the Nikkei rallying, the dollar bounced 0.3% to 103.00 yen, having fallen 0.34 yen overnight. The greenback hit a five-year high of 103.925 yen on Friday.
"We may see nothing at all from the Fed, although they would give a strong indication a taper is on the cards. This is a strong possibility as well, which could be USD negative," Chris Weston at financial spreadbetter IG wrote in a note.
"I would use this as a buying opportunity though, especially against the JPY, given the market will start to expect this action in January."
The euro was steady at $1.37720, having risen 0.2% in the previous two sessions. The common currency touched a six-week high of $1.3811 on December 11.
The Australian dollar was up 0.1% at $0.8903, coming off a 4-1/2 month low of $0.8882 set on Tuesday after the country's central bank reiterated its recent message that the currency was uncomfortably high.
Among commodities, US crude prices added 0.2% to about $97.4 a barrel, recovering from the previous session's 0.3% decline.
Gold rose 0.3% to around $1,232.6 an ounce, having fallen 0.8% overnight. The precious metal has fallen more than 26% this year, heading for its worst annual performance since 1981.
