LONDON: A flare-up in diplomatic tensions with Russia abruptly cut short an attempted recovery in European stock markets on Monday, as Wall Street's initially strong comeback also lost momentum.
The United States and its European allies expelled dozens of Russian diplomats in a coordinated action against Moscow which they accuse of poisoning an ex-spy in the English city of Salisbury.
Trade war fears meanwhile continued to hang over market sentiment like a dark cloud, although some investors became more optimistic amid signs that global trade players are making efforts to avoid an all-out trade conflict, dealers said.
Having held on to modest gains since the opening bell, key markets London, Paris and Frankfurt all slipped into the red in reaction.
All three were also penalized by the strength of the euro and pound against the dollar.
"The rebound didn't last," said Marco Bruzzo, at Mirabaud Asset Management. "The market is still nervous."
Wall Street also came off its early highs as Europe faltered, but still boasted a gain of more than a percent approaching midday in New York.
The Wall Street Journal reported at the weekend that China and the United States had begun behind-the-scenes negotiations to improve American access to the Chinese domestic market.
- 'Productive conversations' -
The US move to impose $60 billion in levies on China -- claiming the country is breaching intellectual property rights -- sparked a rout on equity markets across the world, while Beijing warned it was "not afraid of a trade war".
US Treasury Secretary Steve Mnuchin said at the weekend that Trump was not ready to back down, but added that he had "very productive conversations" with Chinese officials on the issue.
Trump's announcement came weeks after he unveiled tariffs on the import of steel and aluminium products as he presses on with his "America First" protectionist programme.
"How China escalates will determine the pace of play, but Chinese retaliation so far has been more genial than initially thought, and they have made efforts for a diplomatic solution," said Stephen Innes, head of Asia-Pacific trading at OANDA.
Asian stock markets kicked off the day with another drop, but bargain-buying saw some return to positive territory and others pare the losses -- as it emerged that South Korea and the United States had reached an understanding on revising their free-trade agreement and on steel tariffs.
"So far, the initial measures from Trump and China are relatively muted," said James Cheo, senior investment strategist at Bank of Singapore.
"The room for miscalculation seems to be high, both in terms of provoking Chinese retaliation or taking measures that end up hurting the US economy. The hope is that there is rationality from both parties."
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