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Europe: Shares edge higher ahead of US-China trade talks

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[LONDON] European shares closed slightly higher on Tuesday as investors on both sides of the Atlantic took a cautiously optimistic view of trade talks between the United States and China which are set to begin on Wednesday.

The pan-European STOXX 600 index closed up 0.3 per cent, while on Wall Street the S&P 500 was up roughly the same degree.

Investors hoped the talks can ease some tensions, but remained cautious after US President Donald Trump said in an interview he did not expect much progress.

"With Donald Trump playing down expectations of tomorrow's meeting with China, there is reason to believe that we could see this recent optimism fade in the event that talks fail, as they have a number of times before," commented IG analyst Josh Mahony.

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Gains were made across most sectors, but oil and gas stocks posted the best performance as oil rose to its highest in a week, buoyed by the prospect of price support from US sanctions on Iran.

Though the company earnings season is largely over in Europe, shares in oilfield services company John Wood Group were the top STOXX gainers, up 7.6 per cent, after the firm reported first-half profit towards the higher end of its forecast.

Peer Saipem gained more than 6.9 per cent after winning contracts from Exxon Mobil.

A weaker dollar weighed on companies that make much of their revenue overseas, such as British American Tobacco, down 2.4 per cent, or brewer or Heineken, down 0.7 per cent.

Shares in BHP Billiton were down 2.1 per cent after its underlying profit came in below forecasts. Analysts at Jefferies said some investors might be disappointed that BHP did not announce a share buyback, and free cash flow may have peaked.

European stocks are down 1.3 per cent for the year, amid worries over trade and a currency crisis in Turkey.

"Relatively muted earnings growth, weak economic momentum and heightened political risks are challenges," Richard Turnill, global chief investment strategist at BlackRock, said in a note. The firm has an "underweight" view on European equities.

REUTERS