MILAN (Reuters) - European shares bounced on Tuesday after hitting two-month lows a day earlier as comments overnight from Washington and Beijing helped soothe investor worries about a deepening trade row and defy a heavy sell-off on Wall Street.
The pan-European STOXX 600 index was 0.4% higher at 0858 GMT, having fallen 1.2% on Monday after both the U.S. and China announced a new round of tariffs on reciprocal imports, and shrugging off an over 2% drop on Wall Street.
The trade-sensitive German benchmark DAX was also 0.3% higher, while the European auto sector, which is highly dependant on exports for growth and one of the hardest hit on Monday, also rebounded 1%.
Renault (PA:RENA) shares however tumbled 2.5 percent after its Japanese partner, Nissan Motor Co, flagged its weakest annual profit in more than a decade, forecasting a 28% drop in earnings.
U.S. President Donald Trump said on Monday he was optimistic about resolving the trade dispute, while a China diplomat also sounded confident about a possible deal.
Traders said Trump remarks offered support to appetite for risky assets such as stocks, although caution remained high after Beijing retaliated on Tuesday with its own tariffs on U.S. goods.
The sudden about-turn in talks has shattered confidence of a speedy truce to end a dispute that has roiled financial markets for a year.
"There is a bit of a rebound however it needs to be seen if it will last or not," Markus Huber, trader at City of London Markets. "Personally I think there will be some sort of a deal but mainly one which allows the U.S. and China to save face."
The STOXX 600 is down more than 4% so far this month, set for its biggest one-month fall since the December sell-off.
Banks, which have been hurt by new concerns over the economy caused by the unexpected return of trade tension between the world's two biggest economies, rose 0.3%.
The bounce was broad based and that helped mask some downbeat corporate news.
Vodafone (LON:VOD) fell at the open after the group slashed its dividend, reversing a pledge to maintain one of the biggest payouts in Britain so it can build 5G networks and complete its looming acquisition of Liberty Global (NASDAQ:LBTYA) assets.
Its shares recovered ground to trade 2.3% higher.
Bayer (DE:BAYGN) shares plunged to seven-year lows after a jury awarded more than $2 billion to a California couple in the largest U.S. jury verdict against the company over allegations its Roundup weed killer causes cancer. Its shares pared some losses to trade down 3.1%.
A number of positive earnings updates including from German minerals miner K+S, Italian cable maker Prysmian and German pharma group Evotec also provided support. Their shares were all up between 3.6 and 6.1 percent to the top of the STOXX 600.
Davide Campari fell 3.4% after employees at the Italian drinks group sold company shares.
