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GLOBAL MARKETS-Stocks gain as investors welcome preliminary U.S.-China trade deal

Published 16/12/2019, 11:31 pm
© Reuters.  GLOBAL MARKETS-Stocks gain as investors welcome preliminary U.S.-China trade deal
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* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

* STOXX 600 index hits record high

* Euro business growth remains weak - PMI

* FTSE 100, sterling move higher in tandem

By Ritvik Carvalho

LONDON, Dec 16 (Reuters) - World stock markets rose on Monday, trading a notch below a record high hit last week on the back of a preliminary trade deal agreed between the United States and China.

European shares built on the previous week's gains. By midday in London, the pan-European STOXX 600 .STOXX index was up by 1.2% and touched a record high. Germany's DAX .GDAXI rose 0.6%.

Britain's FTSE 100 .FTSE index was up 1.14%, moving in tandem with a buoyant pound that rose 0.3%, adding to gains last week on the back of a landslide victory for Prime Minister Boris Johnson's Conservative Party in the UK election. .EU GBP/

U.S. stock futures also pointed to stronger gains to start the week, with the S&P 500 e-minis ESc1 up 0.36%.

U.S. Trade Representative Robert Lighthizer said on Sunday a deal was "totally done", notwithstanding some needed revisions, and would nearly double U.S. exports to China over the next two years. "phase one" agreement suspended a threatened round of U.S. tariffs on a $160 billion list of Chinese imports that was scheduled to take effect on Sunday. The United States also agreed to halve the tariff rate, to 7.5%, on $120 billion worth of Chinese goods.

"It's good news but we can't celebrate yet," said Mark Mobius, founding partner of Mobius Capital Partners.

"There's going to be a lot more going forward. This agreement is dependent on the degree to which the Chinese comply. This conversation will continue as there's so many issues. It's not just about trade. Its about technical issues, know-how, technology...So there'll be a continuing situation."

The 17-month-old trade dispute between the world's two largest economies has buffeted financial markets and taken a toll on global economic growth.

Euro zone business growth remained weak in December, with tepid foreign demand exacerbating a contraction in manufacturing and offsetting a slight pick-up in services activity, although some analysts saw signs of stabilisation. sentiment helped push MSCI's All Country World Index .MIWD00000PUS up 0.25%. The index, which tracks stocks across 47 countries, reached an all-time high on Friday when the trade deal was agreed.

Earlier in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS to its highest level since April 18. It was last up 0.14%.

Australia's S&P/ASX 200 .AXJO led the way as it jumped 1.63%, while shares in Taiwan .TWII added 0.1%.

Japan's Nikkei 225 .N225 succumbed to some profit-taking, falling 0.29% after surging 2.55% to a 14-month closing high on Friday.

Ryan Felsman, senior economist at CommSec in Sydney, said the trade deal and the receding risk of a disorderly Brexit after the British election yielded a strong Conservative majority provided support for sentiment in Australia.

A lower-than-expected Australian budget surplus due to a sluggish economy has also "built expectations by markets for further easing from the Reserve Bank (of Australia)", he said.

Chinese investors initially had a more tepid reaction to the trade news, with the blue-chip CSI300 index .CSI300 struggling to rise further after trade hopes fanned a near 2% rise on Friday.

But after a lacklustre morning session, the CSI300 index turned higher and was last up 0.5%, helped by data showing the country's industrial output growth and retail sales jumped more than expected in November. at CommSec said investors wanted more details and the reduction in U.S. tariffs may have disappointed some looking for more aggressive action.

"Certainly there were expectations perhaps that the rollback would be more significant than just 50%," he said.

U.S. shares had struck a cautious note on Friday, paring initial gains to end barely higher as weary investors awaited signs of a concrete deal.

However, the news of a deal was still enough to send the S&P 500 .SPX to a record closing high of 3,168.8, up 0.01%.

The Nasdaq Composite .IXIC added 0.2% to end at 8,734.88, also a record, and the Dow Jones Industrial Average .DJI rose 0.01% to 28,135.38.

U.S. Treasury yields moved higher on Monday, reflecting a more positive mood. Benchmark 10-year Treasury notes US10YT=RR rose to 1.8452% compared with their U.S. close of 1.821% on Friday, and the two-year yield US2YT=RR touched 1.6304% compared with a U.S. close of 1.604%.

The dollar was slightly higher against the yen at 109.45 JPY= and the euro was up 0.22% at $1.1144. EUR=

The dollar index .DXY , which tracks the greenback against a basket of six major rivals, was down 0.19% at 96.984.

Oil prices, which had risen on Friday following the China-U.S. deal, hovered near three-month highs. Brent crude was higher by 0.3% at $65.35 per barrel, and U.S. West Texas Intermediate crude CLc1 was flat at $60.05 per barrel.

Spot gold prices XAU= were flat at $1,476.10 per ounce. GOL/

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