Investors cheered the US decision to delay levies on a range of Chinese goods, which has raised hopes the two sides can reach a trade compromise

London (AFP) - European stock markets retreated Wednesday as data cemented fears of a global slowdown led by Germany and China.

Asian indices climbed higher after healthy gains Tuesday on Wall Street and in Europe on news that the United States had delayed tariffs on a swathe of Chinese goods, easing tensions in their bitter trade war.

Shanghai managed to end with a gain of 0.4 percent Wednesday despite data showing Chinese factory output expanded last month at its slowest pace in 17 years.

But Frankfurt slumped 1.4 percent at the half-way stage as data showed Germany’s economy contracted in the second quarter, highlighting its vulnerability to trade tensions and stoking debate on higher government spending.

Shrinkage of 0.1 percent meant the eurozone’s largest economy lost significant momentum compared with the 0.4 percent growth seen in January-March.

Germany meanwhile lagged Italy’s standstill economy – and France which posted 0.2 percent growth.

Milan’s stocks index meanwhile tumbled 1.7 percent also as Italy navigates a political crisis.

“The lift (for stock markets) gained from Tuesday’s trade war twist… failed to carry over to Wednesday – the mood undermined by weak data from both China and Germany,” said Connor Campbell, analyst at Spreadex trading group.

The dollar was down against main rivals, with sterling rising after official data showed UK annual inflation rose unexpectedly to 2.1 percent in July from 2.0 percent the previous month.

Tuesday’s trade war development had provided some much-needed respite for investors, who have come under intense pressure from a range of other issues including concerns over global economic weakness, protests in Hong Kong and Brexit.

Wall Street’s three main indices surged Tuesday, with the tech-rich Nasdaq up two percent, and the Dow and S&P 500 closing more than one percent higher.

Elsewhere on Wednesday, oil prices retreated having surged Tuesday on the tariffs news.

US President Donald Trump said top-level negotiators for Washington and Beijing had held “very productive” talks by phone.

Trump said the decision was made to protect consumers heading into the holiday shopping season, with 10 percent levies on electronics goods – which were due on September 1 – put off until December 15.

“Markets… rallied hard on the notion of Trump blinking, but overall a high degree of scepticism should remain and an imminent deal is unlikely given Trump has foreshadowed he is going to be campaigning hard on the issue in the 2020 election,” cautioned National Australia Bank analyst Tapas Strickland.

- Key figures around 1100 GMT -

London - FTSE 100: DOWN 0.9 percent at 7,185.09 points

Frankfurt - DAX 30: DOWN 1.4 percent at 11,586.66

Paris - CAC 40: DOWN 1.3 percent at 5,294.37

Milan - FTSE MIB: DOWN 1.7 percent at 20,187.13

EURO STOXX 50: DOWN 1.3 percent at 3,312.78

Tokyo - Nikkei 225: UP 1.0 percent at 20,655.13 (close)

Hong Kong - Hang Seng: Up 0.1 percent at 25,302.28 (close)

Shanghai - Composite: UP 0.4 percent at 2,808.91 (close)

New York - Dow: UP 1.4 percent at 26,279.91 (close)

Euro/dollar: UP at $1.1186 from $1.1172 at 2115 GMT

Pound/dollar: UP at $1.2091 from $1.2060

Euro/pound: DOWN at 92.50 pence from 92.60 pence

Dollar/yen: DOWN at 106.18 from 106.74 yen

Brent North Sea crude: DOWN 85 cents at $60.45 per barrel

West Texas Intermediate: DOWN $1.0 at $56.08 per barrel