European stocks resume drop on slowdown fears

European stock markets retreated on Wednesday as data cemented fears of a global slowdown led by Germany and China.

Asian indices climbed higher after healthy gains Tuesday on Wall Street and in Europe on news that the United States had delayed tariffs on a swathe of Chinese goods, easing tensions in their bitter trade war.

Shanghai managed to end with a gain of 0.4% on Wednesday despite data showing Chinese factory output expanded last month at its slowest pace in 17 years.

But Frankfurt slumped 1.4% at the half-way stage as data showed Germany's economy contracted in the second quarter, highlighting its vulnerability to trade tensions and stoking debate on higher government spending.

Shrinkage of 0.1% meant the eurozone's largest economy lost significant momentum compared with the 0.4% growth seen in January-March.

Germany meanwhile lagged Italy's standstill economy - and France which posted 0.2% growth.

Milan's stocks index meanwhile tumbled 1.7% also as Italy navigates a political crisis.

"The lift (for stock markets) gained from Tuesday's trade war twist... failed to carry over to Wednesday - the mood undermined by weak data from both China and Germany," said Connor Campbell, analyst at Spreadex trading group.

The dollar was down against main rivals, with sterling rising after official data showed UK annual inflation rose unexpectedly to 2.1% in July from 2.0% the previous month.

Tuesday's trade war development had provided some much-needed respite for investors, who have come under intense pressure from a range of other issues including concerns over global economic weakness, protests in Hong Kong and Brexit.

Wall Street's three main indices surged on Tuesday, with the tech-rich Nasdaq up 2%, and the Dow and S&P 500 closing more than 1% higher.

Elsewhere on Wednesday, oil prices retreated having surged on Tuesday on the tariffs news.

US President Donald Trump said top-level negotiators for Washington and Beijing had held "very productive" talks by phone.

Trump said the decision was made to protect consumers heading into the holiday shopping season, with 10% levies on electronics goods - which were due on September 1 - put off until December 15.

"Markets... rallied hard on the notion of Trump blinking, but overall a high degree of scepticism should remain and an imminent deal is unlikely given Trump has foreshadowed he is going to be campaigning hard on the issue in the 2020 election," cautioned National Australia Bank analyst Tapas Strickland.