US-China trade talks: European stocks slump, sterling extends dollar-rally

European stock markets slumped Tuesday and the dollar faltered, dragged down by nervousness surrounding China-US trade talks with less than one week until Washington was due to impose fresh tariffs on Chinese goods.

London was hit additionally by official data showing the UK economy flattened in October after contracting the previous two months.

But sterling hit an eight-month high at $1.3190, one day after reaching a 2.5-year peak versus the euro.

The British currency remains well supported going into the final straight of the UK general election Thursday, with Prime Minister Boris Johnson's Conservatives tipped to win a majority that will help him drive through his Brexit deal.

Regarding European equities, "the Sunday deadline for further US tariffs on Chinese goods has dragged stock markets lower, with an underwhelming set of UK data... further hindering sentiment", said Joshua Mahony, senior market analyst at IG trading group.

Major Asian indices closed little changed on Tuesday.

The general consensus is that China and the US will eventually hammer out a partial pact as part of a wider trade agreement, which has fuelled a global equity rally for weeks.

However comments from both sides -- optimistic and downbeat -- are keeping dealers on their toes.

While the week is chock-full of key events including also central bank decisions in the US and Europe, market observers say the trade negotiations are key.

The main concern for now is that with the December 15 deadline approaching, US President Donald Trump still has not scrapped planned levies on $160 billion of Chinese goods, which many fear could derail the long-running talks.

"Given the market has bought into the December tariff delay in a big way, all hell could break loose if the tariffs don't get postponed," said Stephen Innes at AxiTrader.

"Indeed, that would be a bitter pill for investors to swallow as the reality.. sets in that they have yet again been taken down the trade talk garden path only to end up at the cliff edge."

London - FTSE 100: DOWN 1.1 percent at 7,153.22 points Frankfurt - DAX 30: DOWN 1.3 percent at 12,936.51 Paris - CAC 40: DOWN 0.7 percent at 5,795.23 EURO STOXX 50: DOWN 1.0 percent at 3,637.03 Tokyo - Nikkei 225: DOWN 0.1 percent at 23,410.19 (close) Hong Kong - Hang Seng: DOWN 0.2 percent at 26,436.62 (close) Shanghai - Composite: UP 0.1 percent at 2,917.32 (close) New York - Dow: DOWN 0.4 percent at 27,909.60 (close) Euro/dollar: UP at $1.1081 from $1.1064 at 2200 GMT Pound/dollar: UP at $1.3185 from $1.3147

Euro/pound: DOWN at 84.04 pence from 84.15 pence Dollar/yen: UP at 108.57 yen from 108.56 yen Brent North Sea crude: DOWN 0.1 percent at $64.18 per barrel West Texas Intermediate: FLAT at $59.