By Marc Jones
LONDON (Reuters) - A solid shift from Europe and high Wall Street futures kept world stocks at a three-week high on Tuesday, after Asia was knocked back by a shock profit warning from tech giant Samsung and a tick-up in borrowing costs.
Hopes that Washington and Beijing may be moving towards a trade deal was helping the mood again and also gave the dollar a lift in the currency markets after its shaky start to the year.
That rise, along with the alarm from South Korea's Samsung that it would badly miss its earnings forecasts, caused a slip in emerging markets, but Europe held its nerve -- unlike last week after a similar warning from Apple.
The pan-European STOXX 600 rose 1 percent despite some a choppy day in Italy as Rome stepped in to support another of its struggling lenders. Britain's FTSE was up 0.9 percent too as its retailers cheered rare good news about Christmas trading. [.EU]
"I think the market has been quite extreme in pricing recession risks, so I think we have value now in both the equity and bond markets," SEB investment management's global head of asset allocation Hans Peterson said.
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"The discussions between the U.S and China will take some time but I think the markets are prepared to move in the right direction on positive signals."
U.S. Commerce Secretary Wilbur Ross had predicted on Monday that Beijing and Washington could reach a trade deal that "we can live with" as dozens of officials from the world's two largest economies resumed talks in Beijing.
S&P 500 futures gained 0.6 percent following a near 4 percent surge on Wall Street since Friday, led by Amazon and Netflix which have been recovering some of the ground they lost during a brutal end to 2018.
MSCI's broadest index of Asia-Pacific shares ended down 0.2 percent, however. It was dragged lower by falls in South Korea due to Samsung and in China where government bond yields also saw their biggest daily gain in nine months.
China's Foreign Ministry said Beijing had "good faith" to work with the United States to resolve trade friction, but many analysts doubt the two sides can reach a comprehensive agreement on all of the issues before a March deadline.
"Various concerns markets had earlier are receding for now. Still, there's no denying that U.S. (company) earnings momentum is slowing," said Hirokazu Kabeya, chief global strategist at Daiwa Securities.
"Ultimately we need to see whether upcoming earnings reports can dispel market concerns."
DOLLAR STIRS
The dollar has its tail up, trading at 108.71 yen and $1.1460 to the euro as an unexpected fall in German industrial output for the third straight month helped to weaken the euro zone currency.
The British pound traded roughly flat at $1.2780 as British and European officials played down a report in the Daily Telegraph newspaper that plans to extend Britain's formal Article 50 notice to withdraw from the European Union by March 29.
"I wouldn't really want to think about the possibility of extending Article 50 here and now," said I don't think this is what we ought to focus on today," German Foreign Minister Heiko Maas told journalists during a visit to Dublin.
Elsewhere, the Canadian dollar hit one-month highs, having gained 2.7 percent in the past five days on gains in oil prices and on speculation the Bank of Canada will raise interest rates again this week. It last stood at 1.3272 per U.S. dollar.
In the government bond markets, Europe's yields were squeezed higher by a deluge of upcoming debt sales and the 10-year U.S. Treasuries yield bounced back to 2.687 percent, from Friday's near one-year low of 2.543 percent.
Still, its latest level is more than 50 basis points below its October peak of 3.261 percent and some recent caution from the head of the Federal Reserve mean futures markets are now pricing in a slim chance of a U.S. rate cut this year.
Oil prices were also up again on Tuesday, supported by hopes for Sino-U.S. trade talks in Beijing and a Wall Street Journal report that Saudi Arabia is planning to cut crude exports to around 7.1 million barrels per day (bpd) by the end of January.
Both U.S. West Texas Intermediate (WTI) crude futures and International Brent crude futures stayed firm at $48.81 and $57.67 per barrel, respectively, while safe-haven gold eased back to $1,283 an ounce.
(Reporting by Marc Jones, Editing by Jane Merriman and Alison Williams)