Stock markets diverged on the penultimate trading day of 2023 Thursday as investors cautiously look ahead to next year when the US Federal Reserve is expected to cut interest rates.

Wall Street advanced at the open but European stock markets were mixed in afternoon deals.

Asian equities mostly closed higher, with Tokyo bucking the trend as it fell.

Global stock markets have mostly been on the front foot since the Fed's most recent meeting, when it signalled its rate-hike cycle could be nearing an end as inflation slows. 

"Indices have been powered higher, partly by optimism about a soft landing for the US and there is still a risk of the economy slowing more sharply as the full effect of higher borrowing costs filter through," noted Susannah Streeter, head of money and markets at Hargreaves Lansdown.

While US inflation has slowed, it remains above the Fed's long-term target of around two percent, and analysts warned that consumer spending had still not bounced back to healthy levels. 

US retail sales over the key holiday shopping season were up 3.1 percent year-on-year, according to the Mastercard SpendingPulse survey, but that was markedly down from the previous year's 7.6-percent jump.

"This is a reflection of a more cautious consumer and less discounting from retailers due to better inventory management," said asset manager Louis Navellier in a note.

"While inflation is falling, the runup from last year's high rate has still squeezed budgets against a modest wage growth closer to four percent."

On the commodities front, oil prices dropped after recent gains due to concerns the Israel-Hamas war could spill out into an all-out regional conflict.

This comes amid ongoing attacks on key Red Sea shipping lanes by Yemen's Huthi rebels.

Key figures around 1445 GMT

New York – Dow: UP 0.1 percent at 37,683.87 points

London – FTSE 100: UP 0.1 percent at 7,735.63 

Paris – CAC 40: DOWN 0.5 percent at 7,537.65

Frankfurt – DAX: DOWN 0.2 percent at 16,710.05

EURO STOXX 50: DOWN 0.3 percent at 4,516.14

Hong Kong – Hang Seng Index: UP 2.5 percent at 17,043.53 (close) 

Tokyo – Nikkei 225: DOWN 0.4 percent at 33,539.62 (close)

Shanghai – Composite: UP 1.4 percent at 2,954.70 (close) 

Euro/dollar: DOWN at $1.1093 from $1.1109 on Wednesday

Dollar/yen: DOWN at 140.88 yen from 141.81 yen  

Pound/dollar: DOWN at $1.2749 from $1.2801 

Euro/pound: UP at 87.01 pence from 86.75 pence 

West Texas Intermediate: DOWN 1.3 percent at $73.17 per barrel 

Brent North Sea Crude: DOWN 1.3 percent at $78.64 per barrel