LONDON (MarketWatch) -- Europe stocks recovered on Tuesday what they lost in the prior session, with the broader market in a holding pattern as traders awaited news from the U.S. Federal Reserve on whether it will signal an exit strategy from loose monetary policy. The pan-European Dow Jones Stoxx 600 (ST:SXXP 244.77, +1.80, +0.74%) rose 0.9% to 245.03 -- above Friday's close of 244.92 -- with investors picking up auto makers like Peugeot (FR:UG 21.10, +0.43, +2.06%) , which rose 2.8%, and resource extractors like diversified miner Rio Tinto (UK:RIO 2,733, +82.50, +3.12%) (RTP 178.61, +4.38, +2.51%) , which added 3.2% after reaching a deal to sell its Alcan Composites business for $349 million. Schweitzer (CH:SWTQ 499.00, +59.00, +13.41%) , which bought the business from Rio Tinto, climbed over 15% in Zurich. The German DAX (DX:DAX 5,718, +49.16, +0.87%) rose 0.9% to 5,721.57, the U.K. FTSE 100 (UK:UKX 5,169, +34.55, +0.67%) rose 0.7% to 5,171.95 and the French CAC 40 (FR:PX1 3,829, +16.61, +0.44%) climbed 0.6% to 3,834.85. U.S. stocks also opened higher on Wall Street, with the Dow Jones Industrial Average up around 40 points in early trading. And the dollar, which has moved in the opposite direction to most other asset classes of late, weakened against the euro, the British pound and the yen. The Fed's decision is due on Wednesday. The euro rose as high as $1.4820, the first time the shared currency has topped $1.48 this year. Mervyn Douglas, who runs the U.K. Focus Fund at Aviva Investors, said he prefers equities to cash and government bonds. But he also said the market is nearing an end to the phase where early-stage cyclicals outperformed. "We prefer higher-quality long-term franchises which haven't performed relatively well," said Douglas, citing medical-equipment maker Smith & Nephew (UK:SN. 564.00, -2.00, -0.35%) (SNN 46.16, +0.09, +0.19%) and consumer-products group Reckitt Benckiser (UK:RB. 2,977, -30.00, -1.00%) as examples. One of his concerns is that strategists are bringing GDP and earnings forecasts higher but not moving up interest-rate-hike expectations. "So far it's a perfect Goldilocks world, but I don't think that's sustainable." Among stocks in the spotlight, Carnival (UK:CCL 2,171, +106.00, +5.15%) (CCL 34.40, +2.40, +7.50%) rose 5.2% to 21.68 pounds ($35.41) after the cruise ship operator posted a 19.5% drop in quarterly profit, but still beat market expectations and lifted its profit forecast for the year. Ahead of the results, Merrill Lynch also added Carnival to its Europe 1 list, saying it sees "significant opportunities for net revenue yield improvement from current depressed levels and believes the company offers an attractively priced way of playing a U.S.-led consumer recovery." Merrill has a 23.90-pound target on the U.K.-listed Carnival shares and a $38 target on the U.S.-listed shares. Carnival shares gained 7.2% in early Wall Street trading and rival Royal Caribbean (NO:RCL 144.40, +3.50, +2.48%) (RCL 24.46, +1.22, +5.25%) added 6.8%. French hotel operator Accor (FR:AC 39.55, +1.60, +4.20%) rose 4.2% after reaching a sale-and- leaseback transaction on 158 hotels under its hotelF1 brand. Accor said that it will receive 272 million euros ($399 million) from a consortium of French institutional investors and that it has signed a 12-year business lease, renewable six times at Accor's option. Accor said the deal will enable it to reduce its adjusted net debt by 187 million euros in 2009 and will lift pretax profit by around 5 million euros. Water utilities struggled, with United Utilities (UK:UU. 453.90, -11.70, -2.51%) and Severn Trent (UK:SVT 976.00, -22.50, -2.25%) each retreating more than 2%. Aviva's Douglas said they are doing poorly not just because they are defensive but also because of their weak balance sheets, which make dividends difficult to pay. "We don't own any but we wouldn't say avoid it now. If they do resolve the [balance sheet] through equity issuance we would look at them," he said.

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