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Markets ride positive wave on hopes of trade resolution

European and Asian stocks mostly rose on Wednesday as new tit-for-tat tariffs by China and the United States were seen as lighter than feared, while there were hopes the two sides will avert a damaging trade war.

US President Donald Trump said this week that he would press ahead with 10% levies on another $200bn of imports, prompting Beijing to target $60bn of US goods with five to 10% taxes.

The developments were a clear escalation in the months-long standoff between the world's top two economies.

However, analysts said the retaliation measures were not as painful as they could have been and sent European equities higher out of the gates.

"The markets managed a spirited open on Wednesday, despite Beijing's tariff response to Donald Trump's $200bn attack on Chinese imports and the nearing of a Brexit 'moment of truth' in Salzburg," said Spreadex analyst Connor Campbell.

"Though China announcing tariffs on $60bn in US imports is not great news, it is not as bad as it could have been."

European leaders meanwhile meet on Wednesday in Salzburg, Austria, for a summit to set up the last stretch of talks for a Brexit deal.

The leaders will then meet without May on Thursday to discuss the hurdles to a deal and a parallel statement on future relations with Britain, following its departure from the European Union at the end of March.

Pound leaps on data

The pound meanwhile leapt on news that Britain's annual inflation rate unexpectedly hit a six-month high in August.

Despite Wednesday's rally, sterling has slumped since Britain's vote in favour of Brexit more than two years ago.

"Sterling remains pretty much headline-driven in the short term - and any potential setbacks in Brexit developments could easily derail the rally as negotiations enter a critical stage," cautioned Forex.com analyst Fawad Razaqzada.

Asian markets meanwhile picked up the baton from a buoyant Wall Street.

Tokyo rose 1.1%, with a shift out of the safe-haven yen supporting Japanese exporters, while Hong Kong finished up 1.2% and Shanghai ended 1.1% higher.

"The bottom line why the market didn't react negatively was the lack of shock and awe given the tariffs were so well telegraphed," added Stephen Innes, head of Asia-Pacific trade at OANDA.

Dealers are now eyeing possible negotiations between Washington and Beijing after US Treasury Secretary Steven Mnuchin sent an invite.

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