* European shares gain 0.62%
* Germany's DAX outperforms after one-day holiday
* German carmarkers shine; tariff-sensitive auto sector up
1.9%
* Dollar firm near 2-1/2 month lows
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Tom Wilson
LONDON, June 11 (Reuters) - European shares gained ground on
Tuesday, with Germany's carmakers outperforming, as risk
appetite held firm after the United States stepped back from
imposing tariffs on Mexico.
The pan-European STOXX 600 .STOXX climbed 0.62%, on course
for a sixth day of gains in the last seven, with Frankfurt's DAX
.GDAXI racing up 1.2% as German investors returned from a
one-day holiday.
There, BMW BMWG.DE , Daimler DAIGn.DE and VW VOWG_p.DE
- seen as sensitive to trade tariffs - all gained between
1.8%-2%, mirroring a 1.9% gain for the auto sector .SXAP .
Investors have breathed easier this week after the United
States and Mexico reached a deal on Friday to avert tariffs
threatened by U.S. President Donald Trump if steps were not
taken to curb the flow of mostly Central American migrants.
That eased - for now at least - fears that the United States
would find itself in a trade war with another of its largest
commercial partners, adding to the dispute with China.
Trump said on Monday he may impose more tariffs on Chinese
imports if he cannot make progress in talks with President Xi
Jingping at a Group of 20 summit in Japan later this month.
Market participants said that investors would have to wait
until the G20 summit, scheduled for June 28-29, for clear signs
of how the spat would play out.
In the meantime, stocks are likely to be buoyed by
expectations of a cut in rates by the U.S. Federal Reserve.
Markets have priced in a cut by July.
"It looks like we will have to wait to see at the end of the
month, to see what the next move will be," said David Madden, an
analyst at CMC Markets. "In that time, if nothing is said,
stocks could press on higher – the belief that the Fed will all
of a sudden become dovish is really driving markets."
The MSCI world equity index .MIWD00000PUS , which tracks
shares in 47 countries, advanced 0.24%. Wall Street futures were
also seen opening higher, with S&P500 mini futures ESv1 up
0.26%.
In Asia, MSCI's broadest index of Asia-Pacific shares
outside Japan .MIAPJ0000PUS gained 0.9%, with Shanghai's
bourse .SSEC climbing 2% after China tweaked policy on major
investment projects in an attempt to support its slowing
economy. Bourses in Australia .AXJO , South Korea .KS11 and Japan
.N225 also gained.
FED EXPECTATIONS
The dollar held steady above a 2-1/2 month low against a
basket of currencies, with rising expectations for a Fed rate
cut tempered by a reluctance to close positions before the G20.
The dollar index .DXY nudged down 0.03% to 96.747 after
advancing 0.2% on Monday.
"The markets are pricing in a 25-basis-point rate cut in
July," said Peter Schaffrik, head of European rates strategy at
RBC Capital Markets, adding that expectations of looser policy
would likely continue.
"When you see the narrative that the market is painting,
that it is all down to the negative implications from the trade
war and the reduction of global trade," he said. "It's difficult
to see how any one data point will change the entire picture."
Amid the cautious optimism, a rally in longer-dated euro
zone government bonds stalled as the pick-up in risk sentiment
globally sparked a sell-off in the bloc.
Germany's 10-year bond yield, seen as a benchmark for
government debt, was up 3 basis points at minus 0.23%
DE10YT=RR - still a smidgeon away from last week's record
lows.
Thirty-year bond yields in Germany and France were up as
much as 8 basis points in early trade. DE10YT=RR FR10YT=RR
In commodities, oil prices rose, bolstered by firmer
financial markets and expectations that producer group OPEC and
its allies will keep withholding supply. Brent crude futures
LCOc1 were at $62.67 at 0741 GMT, up 0.4%.
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