LONDON: Stock markets retreated Thursday, and the pound eased versus the dollar and euro, after the UK government narrowly survived a no-confidence vote and as US-China trade tensions resurfaced.
European shares followed Asia in posting losses after Wall Street had closed higher Wednesday on better-than-expected US corporate earnings.
"European equity markets are in the red... as political and economic risks weigh on sentiment," noted David Madden, analyst at CMC Markets UK.
British Prime Minister Theresa May scrambled to put together a new Brexit strategy on Thursday with cross-party talks after MPs sparked political turmoil by rejecting her previous agreement with the EU.
May reached out to rival parties shortly after surviving a no-confidence vote Wednesday, hoping to hammer out a Brexit fix that she could present to parliament next week.
Meanwhile after a tumultuous December for markets, global equities have enjoyed a broadly strong start to the year, largely thanks to optimism China and the US will resolve their trade row.
But confidence took a knock Wednesday from a report that said US officials were carrying out a criminal probe into Chinese tech giant Huawei and could soon indict the firm over allegations of theft of trade secrets from its American business partners.
Lawmakers have also introduced a bill to ban the export of American parts and components to Chinese telecom companies that are in violation of US export control or sanctions laws -- with Huawei and fellow Chinese firm ZTE the likely targets.
"Huawei is effectively an intelligence-gathering arm of the Chinese Communist Party whose founder and CEO was an engineer for the People's Liberation Army," said Republican Senator Tom Cotton, one of the bill's sponsors.
The developments follow the arrest last year in Canada of Huawei's chief financial officer Meng Wanzhou, who is the daughter of the company's founder and faces extradition to the US on Iran sanctions-linked fraud charges.
It also muddies the waters in trade talks between Beijing and Washington, which looked to be on a positive course after officials held three days of talks earlier this month, with both sides seemingly upbeat.
On Wall Street, all three main indices closed with gains Wednesday after earnings reports from Bank of America and Goldman Sachs that overshot forecasts, while executives said they were confident the US economy was in rude health.
The Federal Reserve's closely followed "Beige Book" report pointed out that political and trade uncertainty was weighing on business confidence though growth was continuing at a modest pace in most of the country.
There are increasing worries about the impact of the US government shutdown as it moves towards a fifth week, with Oxford Economics estimating it is slashing growth by $700 million a week.
- Key figures around 1100 GMT -
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London - FTSE 100: DOWN 0.4 percent at 6,836.86 points
Frankfurt - DAX 30: DOWN 0.3 percent at 10,904.02
Paris - CAC 40: DOWN 0.4 percent at 4,793.01
EURO STOXX 50: DOWN 0.4 percent at 3,066.28
Tokyo - Nikkei 225: DOWN 0.2 percent at 20,402.27 (close)
Hong Kong - Hang Seng: DOWN 0.5 percent at 26,755.63 (close)
Shanghai - Composite: DOWN 0.4 percent at 2,559.64 (close)
New York - DOW: UP 0.6 percent at 24,207.16 (close)
Pound/dollar: DOWN at $1.2876 from $1.2877 at 2140 GMT
Euro/pound: UP at 88.49 pence from 88.44 pence
Euro/dollar: DOWN at $1.1385 from $1.1395
Dollar/yen: DOWN at 108.78 yen from 109.05
Oil - Brent Crude: DOWN 55 cents at $60.77 per barrel
Oil - West Texas Intermediate: DOWN 61 cents at $51.70