* FTSEurofirst 300 index steadies by midday
* Focus on Fed's move; some stimulus measures eyed
* Defensive shares on back food, cyclicals in demand
By Atul Prakash
LONDON, June 20 (Reuters) - European shares steadied near one-month highs in choppy trading on Wednesday as investors nervously waited to see if the U.S. central bank will announce more stimulus measures - a move which would support the recent rally.
Stocks traditionally seen as defensives lost ground, while cyclical sectors that tend to do well in a positive economic environment advanced as some investors bet that the U.S. Federal Reserve will announce some stimulus measures at the end of its two-day policy meeting later in the day.
The pan-European FTSEurofirst 300 index surged 1.6 percent to a one-month high on Tuesday on hopes of some positive Fed moves, with speculations ranging from the purchase and sale of bonds to another round of quantitative easing, but investors became nervous ahead a Fed statement, due at 1630 GMT.
The index moved in and out of positive territory several times during the trading session leading to midday, and was up 0.1 percent at 1,010.79 points by 1108 GMT. It is up 3.6 percent this month after falling 6.7 percent in May.
Analysts said the market could rally in the event of some hints about another round of quantitative easing or an extension to the Fed's bond-buying programme, dubbed Operation Twist, in which it sells bonds with maturities of three years or less and buys securities with maturities of six years and longer.
But there were questions about the sustainability of a market bounce in the event of any further U.S. bond buying programme, aimed at pushing down longer-term interest rates to shield the still-fragile U.S. economy.
"Any rally could be short-lived as underlying problems are not going to go away. I am not sure the Fed's announcements at this stage are going to be a game changer," said Felicity Smith, fund manager at Bedlam Asset Management.
"You need to see some real progress towards resolving the euro zone debt crisis, but it's very difficult to see how that will come without somebody being prepared to take some pain. There is very little appetite for it."
NOW OR LATER?
Analysts said recent poor data raised hopes the Fed would adopt further monetary stimulus measures to support the economic recovery, although some investors believed the central bank might leave the policy unchanged on Wednesday and announce a fresh round of quantitative easing in its next meeting.
"Operation Twist is more likely than any measures in terms of printing new money or a further round of quantitative easing, but with bond yields as low as they are at the long end, I don't see that having much economic significance," Gerard Lane, strategist at Shore Capital, said.
Graham Bishop, equity strategist at Exane BNP Paribas, said shares could trim recent strong gains if the Fed failed to announce fresh stimulus measures, but the drop was seen limited as there were plenty of investment opportunities.
"But if we see some positive action from the Fed, that will be the start of a wider move in equities. It will signal that they are likely to do more in terms of quantitative easing," he said and added: "Directionally, we are bullish on equities and see a 15 percent upside potential by the year end."
Bishop said he was "long" on cyclicals such as mining, industrial and chemicals, but was "underweight" on defensive sectors such as food and beverages, which were relatively expensive in terms of valuations.
The STOXX Europe Food and Beverages index fell 1.2 percent to top the losers' list. On the other hand, cyclical shares such as miners, up 2 percent, and banks, up 1.1 percent, were in demand.
Smith of Bedlam said investors should look for sectors where they could see demand. Agricultural suppliers such as companies in the field of chemicals, fertilisers and seed should continue to do well as food production will remain important.
Bedlam has invested in Swiss group Syngenta, the world's largest agrochemicals company, she said, adding some energy companies could also perform well as gas demand was likely to remain high because of a move towards cleaner energy.
Analysts said there was a case for central banks to launch supportive measures to boost the pace of economic recovery and that could happen sooner, rather than later.
Minutes to the Bank of England's June 6-7 policy meeting showed it is on the verge of approving another round of monetary stimulus, with Governor Mervyn King supporting an extra 50 billion pounds of gilt purchases.
Societe Generale said in a note that investors should switch to Britain and even possibly the euro zone and take profits on the strong gains in U.S. equities.