European shares bounced in early trading on Tuesday after hitting two-month lows a day earlier, as comments overnight from Washington and Beijing helped soothe investor worries about a deepening trade row and defy a heavy sell-off on Wall Street.
The pan-European STOXX 600 index was 0.6 per cent higher at 0736 GMT, having fallen 1.2 per cent on Monday after both the US and China announced a new round of tariffs on reciprocal imports.
The trade-sensitive German benchmark DAX was also 0.5 per cent higher, while the European auto sector, which is highly dependant on exports for growth and one of the hardest hit on Monday, rose 1.4 per cent to lead sectoral gainers in the region.
US President Donald Trump said on Monday he was optimistic about resolving the trade dispute, while a China diplomat also sounded confident about a possible deal.
Traders said Trump’s remarks offered support to appetite for risky assets such as stocks, although caution remained high after Beijing retaliated on Tuesday with its own tariffs on US goods, ratcheting up the tensions between the world's top economies.
The sudden about-turn in talks has shattered confidence of a speedy truce to end a dispute that has roiled financial markets for a year.
“Investors will want to see concrete evidence of progress after Trump's 180 degree turn last week spooked the markets,” said Jasper Lawler, Head of Research at LCG in London.
The STOXX 600 is down more than 4 per cent so far this month, set for its biggest one-month fall since the December sell-off.
Banks, which have been hurt by fresh concerns over the economy sparked by the unexpected return of trade tension between the world's two biggest economies, rose 0.7 per cent.
The bounce was broad-based and that helped mask some downbeat corporate news.
Vodafone fell at the open after the group slashed its dividend, reversing a pledge to maintain one of the biggest pay-outs in Britain so it can build 5G networks and complete its looming acquisition of Liberty Global assets.
Its shares recovered ground to trade 1.3 per cent higher.
Bayer shares plunged to seven-year lows after a jury awarded more than $2 billion to a California couple in the largest US jury verdict against the company over allegations its Roundup weed killer causes cancer. Its shares pared some losses to trade down 3.2 per cent.
A number of positive earnings updates, including from German minerals miner K+S, Italian cable maker Prysmian and German pharma group Evotec, also provided support. Their shares were all up between 3 and 6 per cent to the top of the STOXX 600.