LONDON: European stock markets trod water Wednesday as investors girded themselves for what German Chancellor Angela Merkel called a "contentious" summit of Group of Seven nations later this week.
Wall Street rose on data showing that the US trade gap is narrowing.
G7 leaders will descend on Quebec this Friday and Saturday for a summit dominated by world trade after US President Donald Trump slapped Canada, Mexico and the European Union with steel and aluminium tariffs.
Merkel said she expected "contentious discussions" at the summit, given differences with Trump on trade, climate and security.
In response to Trump's punitive tariffs on metals, both the EU and Mexico have announced retaliatory measures.
- 'Buckle up' -
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"Investors should buckle up for a potential showdown as trade is expected to be a major talking point throughout the summit," said FXTM analyst Lukman Otunuga. "With escalating trade tensions seen as a significant threat to global economic growth, this could be a G7 meeting like no other."
Meanwhile, official data showed that the US trade deficit narrowed in April for a second straight month.
The total trade deficit fell 2.1 percent for April to $46.2 billion after a downward revision for March. The result was better than analysts expected since the consensus forecast called for an increase.
The stock markets were also looking ahead to monetary policy decisions next week by both the US Federal Reserve and the European Central Bank, analysts said.
The ECB's chief economist Peter Praet said policymakers would discuss when to wind down the massive bond-buying scheme that has propped up the eurozone economy for the past three years.
- ECB-watching -
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"Although the Federal Reserve is almost certain to raise interest rates next week, it is the ECB which all of a sudden is looking to be the more anticipated meeting," said Forex.com analyst, Fawad Razaqzada.
"The central bank may announce its intention to end (quantitative easing) at the end of the year as early as at the next week's meeting," he said.
On currency markets, the dollar weakened against the euro, which was enjoying attention again after last week's sell-off fuelled by political turmoil in Italy and Spain.
"The markets continue to grapple with global trade and European political and monetary policy uncertainties," said analysts at Charles Schwab.
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