European shares recovered rapidly from a weak start on Monday after reports US President Trump plans new 10 per cent tariffs on $200 billion of Chinese imports, with investors focusing on strong results.

Despite China's Foreign Ministry also saying it would respond to Trump's threat, an early fall across European benchmarks evaporated with just Germany's DAX still in the red by 0840 GMT.

The pan-European STOXX 600 reversed early losses to rise 0.2 per cent, while Germany's DAX, home to large exporters and carmakers, was down 0.2 per cent. Chinese stocks had fallen to their lowest close in nearly four years overnight.

“I think the market has digested more or less all this rollercoaster with tariffs,” said Dimitrios Stefanopoulos, portfolio manager at AlphaTrust in Athens, adding that investors believe Trump will seek a deal ahead of US mid-term elections.

The market was buoyed by strong defensive telecoms and utilities stocks. Cyclicals sectors, which are more sensitive to trade and economic growth, have lagged as the trade war ramped up over the past months.

“If the trade war hits the economy, then defensives will be better off,” said Stefanopoulos.

On Monday several stocks shone after results, helping support risk appetite. Forecast-beating sales from H&M sent the shares up 12.6 per cent, an encouraging result for the world's second-biggest fashion retailer whose shares are down 43 per cent from their level a year ago.

The large amount of H&M shares being shorted by investors makes any positive news a significant boost for the stock as short sellers are “squeezed” to unravel their position. Belgian biotech firm Argenx jumped 13 per cent after it reported positive results from a trial of its Efgartigimod drug for primary immune thrombocytopenia.

Casino shares rose 2.9 per cent after the French supermarket's parent Rallye, through which Jean-Charles Naouri exercises control of the firm, got a new €500 million credit facility. Rallye shares - which are highly shorted - jumped 6.9 per cent.

Credit Suisse shares dipped 0.1 per cent after Swiss regulator Finma said the lender had failed in its duty to combat corruption in cases linked to FIFA and Venezuelan and Brazilian state oil companies.

The stock was likely supported by an interview with CEO Tidjane Thiam in Swiss newspaper NZZ am Sonntag, in which he said Credit Suisse was aiming for an annual profit of 5 to 6 billion francs for the next two years.

And on the M&A front, reinsurer Scor rose 1.7 per cent after sources told Reuters unlisted French cooperative insurer Covea was working on a new approach for Scor after its friendly €8.2 billion offer was rejected last month.

While the potential tariffs on China were reported to be 10 per cent, lower than the 25 per cent the administration had previously said it was considering, economists said this would still have a significant impact on markets.

“Our US economists expect that even a 10 per cent tariff rate will slow growth in Q4, resulting in the Fed skipping a December hike,” wrote UBS strategists.

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