Wall Street closed lower overnight amid cautious trade ahead of the outcome of the Federal Reserve’s policy-setting meeting, during which it may decide to scale back its economic stimulus program.

The Dow Jones closed nine points lower at 15,875.

The S&P 500 retreated by 0.2 per cent to 1,781.

The Federal Open Market Committee started its much anticipated meeting overnight, where it will vote on whether the economy is strong enough to scale back its $US85 billion a month stimulus program.

Encouraging retail, manufacturing, employment and trade figures have led some analysts to expect the Fed will start trimming this month.

But others expect the FOMC will hold off until January or March to make sure those recent positive readings on the economy have been sustained.

Overnight, some weak US inflation and wage growth data added to the argument that they will wait.

Their decision will be released at 6am (AEDT) tomorrow.

European markets dropped overnight despite strong data from Germany, as investors focused on the US Federal Reserve’s decision.

A key report shows German investor sentiment hit a the highest level since 2006 this month.

The keenly watched investor confidence index calculated by the ZEW economic institute jumped by 7.4 points to a level of 62 in December.

The DAX lost 0.9 per cent to close at 9,085, while and in London the FTSE 100 gave up 0.6 per cent to close at 6,486.

The Australian dollar touched a low of 88.2 US cents overnight.

It has recovered very slightly and was buying 88.98 US cents at 8:50am.

West Texas crude closed at $US96.92 a barrel, and Singapore’s Tapis crude price was $US114.90.

The spot gold price lost 1 per cent overnight to $US1,231.84 an ounce.