By Elizabeth Howcroft
PARIS (Reuters) -Stocks rose in early European trading on Wednesday and the euro held near a five-month high, helped by news that Ukraine would support a U.S. proposal for a 30-day ceasefire, but fears around U.S. tariff plans kept traders cautious.
Financial markets were left scrambling on Wall Street on Tuesday after U.S. President Donald Trump threatened to double steel and aluminium tariffs on Canada to 50%, then rapidly reversed course.
But U.S. indexes recovered some of their losses later in the session and European futures jumped after Kyiv said it would accept a U.S. ceasefire proposal and the U.S. said it would restore military aid and intelligence-sharing to Ukraine.
At 1032 GMT, Europe's STOXX 600 was up 0.8% on the day, in a sign of turnaround from its previous four consecutive days of losses.
London's FTSE 100 was up 0.4% and Germany's DAX was up 1.4%.
The MSCI World Equity index, which has lost around 4.1% so far this month, was a touch higher, up 0.1% on the day.
Stocks have suffered their heaviest selling in months lately as Trump's focus on tariffs since taking office in January has hurt investor, consumer and business confidence and prompted fears of a U.S. recession.
Trump's tariffs on all U.S. steel and aluminium imports took effect on Wednesday and the European Commission responded, saying it would impose counter-tariffs on 26 billion euros ($28.40 billion) worth U.S. goods from next month.
"There has been a very sharp rebound in political uncertainty in the U.S., especially regarding Mr Trump’s policies in tariffs, and that’s really preventing markets from continuing moving upward," said Amelie Derambure, senior multi-asset manager at Amundi, Europe's biggest asset manager.
"The newsflow is quite painful for markets because it’s all about tariffs, which we know is negative (for) growth for the U.S., but also for the rest of the world."
EURO NEAR FIVE-MONTH HIGH
The U.S. dollar index was little changed, at 103.52, but the euro was near its highest in five months at $1.0913, helped by the Ukraine news. The Russian rouble reached a more than six-month high on Tuesday, but pulled back on Wednesday.
"The risk premia that was embedded in the European currency due to slow growth, political uncertainty etc, is diminishing very rapidly," Amundi's Derambure said.
Euro zone government bond yields rose, with the benchmark 10-year German Bund yield near a 17-month high as Germany's likely next chancellor, Friedrich Merz, worked to secure support for a massive increase in state borrowing. Plans to create a 500 billion euro infrastructure fund and overhaul borrowing rules in Germany are expected to cause structurally higher bond yields for the country.