UPDATE 1-European shares rise on trade optimism; Michelin inflates tyre makers, autos

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LONDON (Reuters) – European shares opened higher on Tuesday as investors cheered signs of a compromise in the standoff over the U.S. government funding and positive signals around U.S.-China trade talks, while Michelin’s results pumped up tire stocks.

Pedestrians pass the London Stock Exchange in London, Britain August 15, 2017. REUTERS/Neil Hall

The pan-European STOXX 600 was up 0.6 percent at 0940 GMT, with Germany’s trade-sensitive DAX up 1.1 percent and Paris’ CAC 40 up 0.8 percent.

Automakers and their suppliers were the biggest gainers, up 2 percent after Michelin delivered better-than-expected results and pledged further gains in operating profit this year despite challenging conditions.

The French tire maker’s shares rallied more than 10 percent and were on track for their best day in nearly a decade.

Italy’s Pirelli and Germany’s Continental were among the top gainers in their domestic markets and on the STOXX 600.

London indices underperformed their euro-zone peers amid caution ahead of a parliamentary address by British Prime Minister Theresa May later in the day as she struggles to secure a Brexit deal.

Highlighting the headwinds that threaten the rally in global equities so far this year, Credit Suisse said it was shifting to a ‘neutral’ stance on global equities, taking profit on its ‘overweight’ view.

“While we continue to expect overall attractive total returns from global equities this year, we recognize certain mounting short-term risks,” it said.

“In particular, we note that investors remain thin-skinned after last December’s correction.”

Furthermore, the U.S.-China trade conflict could lead to renewed volatility, while growing political tensions in Italy, France and Germany and the still uncertain Brexit outcome could weigh further on European stocks, it said.

Gucci owner Kering shares turned positive in midmorning trade as investors took comfort from upbeat comments about the Q1 outlook.

Shares had fallen as much as 3.3 percent in early deals as the better-than-expected sales failed to impress investors, a sign of the demanding expectations for luxury brand earnings following solid numbers from the sector, including LVMH last week.

Thyssenkrupp shares fell 2 percent after its mixed report. The German steel-to-elevator maker stood by its 2018/19 targets, but warned the global economic environment is darkening after reporting a big drop in first-quarter results.

Investors continued to punish TUI as the tour operator reported a widening loss in its quarter to end-December. That follows its profit warning last week.

Online trading platform Plus500 lost more than a third of its value after the company issued a profit and revenue warning, blaming tightening EU regulation on its retail business. The news dragged peer IG with it.

Reporting by Josephine Mason; Editing by Danilo Masoni/Keith Weir

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