European stocks rally as rate cut prospect offsets trade war tensions

The London Stock Exchange logo. (AFP PHOTO/BEN STANSALL)

The dollar was mixed against main rivals, while the pound won support from official data showing UK unemployment held at a 45-year low point with a rate of 3.8 percent.

"Safe to say, the changing expectations for interest rates is the primary reason for such a strong rebound in the (stock) markets that didn't look particularly likely at the start of last week," said Oanda senior market analyst Craig Erlam.

"Once again, it's central banks that are left to fill the economic void, easing investor fears over trade wars and a global slowdown."

Friday's weak US jobs report has increased expectations that the Federal Reserve will look to cut interest rates, weighing on the dollar but boosting stock markets around the world.

US producer price data released on Tuesday corroborated the view that price pressures in the world's biggest economy remain contained.

Brexit uncertainty has meanwhile reduced expectations of a rate hike from the Bank of England any time soon, while the European Central Bank has vowed support to stimulate a struggling eurozone economy.

Rising prospects of a US rate cut come as President Donald Trump has threatened new tariffs against Beijing amid an escalating trade war.

Trump said a meeting with Chinese President Xi Jinping had been "scheduled" during the G20 summit in Japan later this month.

But China on Tuesday did not confirm any meeting.

A Trump-Xi meeting would mark a turning point in the bruising trade dispute between the world's two biggest economies that has spooked markets worldwide and sparked worries about the global economy.

Current stock market gains were highly welcome after the US president shocked markets last month by hiking levies on US$200 billion of Chinese imports, blaming backsliding over their long-running trade talks.

Oil prices recovered, having dropped on Monday on uncertainties about an agreement between crude producing nations to cap output.

Key figures around 1540 GMT:

London - FTSE 100: UP 0.3 per cent at 7,398.45 points (close)

Frankfurt - DAX 30: UP 0.9 per cent at 12,155.81 (close)

Paris - CAC 40: UP 0.5 per cent at 5,408.45 (close)

EURO STOXX 50: UP 0.4 per cent at 3,401.10

Tokyo - Nikkei 225: UP 0.3 per cent at 21,204.28 (close)

Hong Kong - Hang Seng: Up 0.8 per cent at 27,789.34 (close)

Shanghai - Composite: UP 2.6 per cent at 2,925.72 (close)

Euro/dollar: DOWN at US$1.1315 from US$1.1316 at 2040 GMT Monday

Pound/dollar: UP at US$1.2723 from US$1.2686

Dollar/yen: UP at 108.57 yen from 108.49 yen

Oil - Brent North Sea: UP 6 cents at US$62.35 per barrel

Oil - West Texas Intermediate: UP 27 cents at US$53.53 per barrel