IT was a generally positive session for Asian stock markets, but with a huge dose of caution in the air ahead of the US Federal Reserve's upcoming pronouncement on the economic outlook and more key economic data ahead.

In Singapore, the benchmark Straits Times index rose, but on lacklustre trading on thin volumes.

The 27.09-point gain to 2,648.64 came on the back of relatively light buying on heavyweights like the banks and conglomerates such as Keppel Corp.

The volume leaderboard continued to be hogged by the usual suspects like Golden Agri, Genting, and more lately, Transcu.

One debutante on the volume leaders' list was energy sector services company AusGroup, which closed unchanged at 61.5 cents after posting a 70 per cent drop in Q1 earnings to just A$1.7 million (S$2.2 million). But analysts generally remain sanguine on the prospects for the company, citing rising energy prices and increasing exploration activity.

Meanwhile, sentiment Asia-wide was supported by the World Bank's re-rating of China's growth forecast and a continuing firming of global commodity prices.

But the big event overhanging the market will be the two-day Fed meeting.

While the consensus is on the Fed holding rates at current record lows, despite the US economy growing for the first time in a year in the third quarter, at a 3.5 per cent annual rate. Markets will be looking for its indications of where the economy is heading. Most analysts will also be watching closely to see if the Fed changes the wording about keeping rates low for an 'extended period'.

Meanwhile, a recent poll of institutional investors suggests that most are generally upbeat on the market outlook, especially for Asia and the Pacific.

Over three quarters of the 150 of the world's biggest investment funds polled by global investor relations consultancy FD expressed confidence on the outlook for equity markets going into 2010.

And 80 per cent cited the Asia-Pacific as their preferred region of investment, with the United States next in line.

There are three good reasons for this optimism.

Firstly, despite the seven-month rally which has lifted global markets by more than 60 per cent, the amount of cash still sitting on the sidelines is about 90 per cent of total market capitalisation - way above the conventional cash-to-market capitalisation ratio of some 60 per cent. So the potential for more liquidity-driven market recoveries remains high.

Secondly, sequential quarter-on-quarter corporate earnings recovery seems to be well underway, thanks to a combination of lower costs (largely labour) and a gradual recovery in demand. Analysts note that layoffs, coupled with sharp cuts in wages and working hours, have enabled companies to boost their labour productivity and bottom line even under anaemic growth conditions.

Thirdly, the full extent of fiscal stimulus packages rolled out by governments around the world has yet to feed into the system. And when it does, this will have a huge accelerator impact on demand, say economists.

The big worry, however, is jobs. Faced with the capacity overhang, companies are still not hiring in a big way. And if they don't, consumer demand will remain sluggish, ultimately impacting corporate bottom lines.

Going forward, global equity markets will continue dancing to the tune set by these opposing forces of hope and fear.