PARIS: European stocks edged higher on Wednesday, extending gains for a third day, as investors awaited a crucial monetary policy decision from the Federal Reserve amid turmoil in the banking sector.

The pan-European STOXX 600 index inched 0.2% up after a two-day bounce.

The index is up 2.5% so far this week, helped by banking stocks, following a series of measures to stabilise the sector following the collapse of three US banks and trouble at lender Credit Suisse.

“There is still a bit of a relief rally going on off the back of finding a solution to the Credit Suisse situation and some positive sounds coming out of the US,” said Jonas Goltermann, deputy chief markets economist at Capital Economics.

The European Central Bank’s top brass said they were watching for signs of banking stress from the ongoing financial turmoil but a full-blown crisis is unlikely for now.

European banks slipped 0.2% after jumping nearly 5% in the past two sessions, lifted by UBS’ state-backed takeover of Credit Suisse and coordinated actions by central banks to boost liquidity.

The Fed is expected to raise interest rates 25 basis points later on Wednesday, as a political storm brews over the US central bank’s oversight of recently collapsed Silicon Valley Bank.

The Fed decision is due at 1800 GMT and Chair Jerome Powell will speak at a news conference half an hour later.

“Markets are very much aware that the Fed is stuck between a rock and a hard place,” said Han Tan, chief market analyst at Exinity Group.