GLOBAL MARKETS-U.S.-China trade truce hopes rekindle risk appetite

* MSCI world share index rises after 4 days of modest falls
* Germany leads struggling Europe, Japan, Hong Kong top Asia
* U.S.-China tentative agreement to trade truce - SCMP
* Market pares bets for half-point Fed rate cut in July

By Marc Jones
LONDON, June 27 (Reuters) - World shares and the dollar were
left clinging to gains on Thursday amid conflicting reports on
whether the United States and China will agree a truce on trade
at a meeting of their leaders this weekend.
Risk appetite had risen after the South China Morning Post
said Washington and Beijing were laying out an agreement that
would help avert the next round of tariffs on an additional $300
billion of Chinese imports. On Wednesday, U.S. President Donald Trump had said a trade
deal with Chinese President Xi Jinping was possible this
weekend, though he was prepared to impose tariffs on virtually
all remaining Chinese imports if the talks fail. The Wall Street Journal then cited Chinese officials as
saying that Beijing was insisting on the removal of a ban on the
sale of U.S. technology to Huawei as part of any rapprochement.
"But the truce cake seems to have been baked," the Morning
Post quoted one of its sources as saying.
Hopes that the world's two biggest economies would finally
reach an agreement remained just strong enough to raise MSCI's
broadest index of world shares almost 0.2% .MIWD00000PUS after
four days of losses.
Germany's trade-sensitive DAX .GDAXI had led an early
advance by Europe with a 0.7% jump, then pulled back almost to
flat again as data showed euro zone economic sentiment has
fallen to its lowest point in nearly three years.
.EU
Wall Street futures were still higher despite more woes for
planemaker Boeing .N . Asia finished strongly, with China's
blue-chip index .CSI300 closing up 1% and Hong Kong's Hang
Seng .HSI and Japan's Nikkei .N225 ending 1.4% and 1.2%
higher. .T .SS
"The market is focusing on the hope that there will be a
trade truce," said ING's chief EMEA FX and rates strategist,
Petr Krpata. "We still think, though, that it would be temporary
and that things will get worse again over the summer before they
get better."
The trade row has already rattled investors, who have
ditched shares for the safety of bonds and gold this year. It
has also prompted the U.S. Federal Reserve to shift 180 degrees
from raising interest rates in December to now signalling a cut
as soon as next month.
Many traders still expect the market to remain in a narrow
range until after the G20 meeting, where Trump is also holding
bilateral talks with other nations.
"Overall it seems more likely that tariffs are hiked than
not, following the meeting, though the timing of this may be
confused by a desire for positive optics," JPMorgan said in a
note.

LESS THAN 50
China's central bank on Thursday promised again more support
for the economy if it's needed. Trump, meanwhile, had weighed back into U.S. monetary
policy, accusing Fed Chairman Jerome Powell on Wednesday of
doing a "bad job" and "out to prove how tough he is" by not
cutting interest rates. Markets are convinced the Fed will indeed ease at its next
meeting in July, but had to scale back bets on a half-point cut
following cautious comments from various policy makers.
Futures FEDWATCH are 100% priced for a cut of 25 basis
points next month, and imply a 22% chance of 50 basis points.
The probability of a less aggressive Fed and expectations of
a Sino-China trade truce helped nudge up bond yields and ease
the selling pressure on the U.S. dollar, which hovered at 96.300
.DXY against a basket of currencies, up from a three-month low
of 95.843. /FRX
The dollar gained against the yen to 108.13 JPY= , after
reaching a low of 106.77. The euro also eased to $1.13505
EUR= , down from $1.1412.
Gold broke a six-session winning stretch and slipped to
$1,403.94 per ounce XAU= .
Oil prices ran into profit-taking, having gained overnight
on a larger-than-expected drawdown in crude inventories as
exports rose to a record high and refined-product inventories
unexpectedly fell. O/R
Brent crude LCOc1 futures fell 55 cents to $65.92. U.S.
crude CLc1 lost 47 cents to $58.91 a barrel.

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