World stocks bounce back as trade war fears ease

London - Global stocks railed higher on Thursday as investors judged recent trade war fears were overblown, dealers said.

In Europe, the French and German stock markets battled higher with 1.8% gains, while London rose 1.2%.

Tokyo led the gainers in Asia, climbing a solid 1.5% as the more positive market sentiment reduced demand for the haven yen, pushing the currency down. Hong Kong and Shanghai were closed for holidays.

"Investors are expressing confidence that a solution will be found before a full-blown trade war erupts," said Craig Erlam, senior analyst at trading firm Oanda.

However, he also sounded a note of caution over the lingering market concerns.

"The reality is that a trade war remains a real possibility," warned Erlam.

"US President Donald Trump is looking to pick a fight with the world's second largest economy, a fight he believes is easy to win, and China is willing to go toe to toe with the United States - even if it means inflicting harm at home."

READ: China to respond to new US duties with 'same scale, intensity'

The more bullish outlook for stocks came on the heels of another see-saw session on Wall Street that saw equities rally impressively into the close.

Traders have been spooked by tit-for-tat accusations and measures between China and the United States that some fear could lead to a full-blown trade war between the world's top two economies.

China unveiled plans on Wednesday to hit major US exports in retaliation for US tariff plans detailed the day before.

"It's hard to see how anyone wins in this but investors currently, despite the declines we've seen, are expressing confidence that a solution will be found before a full blown trade war erupts," said Erlam.

The Dow whipsawed nearly 800 points between its session low and peak on Wednesday before finishing with a gain of one percent.

READ: US stocks jump as investors reassess trade war risk

Analysts said the catalyst for the turnaround was comments by recently appointed White House economic advisor Larry Kudlow, who suggested Trump's strident approach to China was a negotiating tactic to win concessions.

"I understand the stock market anxiety. I get that," Kudlow told Fox Business. "I think at the end of this whole process, the end of the rainbow, there's a pot of gold."

* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER