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European shares hit more than four-year peak on trade hopes

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(Reuters) - European shares hit more than four-year highs on Tuesday, edging closer to record highs, driven by a rally in energy and commodity-linked stocks as U.S.-China trade-related optimism boosted risk appetite.

China is pushing U.S. President Donald Trump to remove more tariffs as part of a “phase one” trade deal, which may be signed this month - a first step to ending a 16-month long trade war.

Mining companies .SXPP rose 1.7%, extending gains for a third session, while rising oil prices bolstered a rally in energy stocks .SXEP. Banks continued their wining streak, ending higher for a fourth day in five.

“Hopefully we’ll get a deal (next week) and get some line of sight into talks beyond the phase one deal, what it means for the December tariffs. There is little bit of scope for output momentum continuing over that period,” said David Page, senior economist at AXA Investment Managers.

“European stocks have been caught very much in that big spat, so I think there is lot of positivity in the markets.”

The pan-European STOXX 600 index closed up 0.2% at their highest since July 2015. AXA’s Page said the focus on Wednesday will be on euro zone services PMIs.

“I think we would be surprised to see services PMI fall back materially. We’ll watch the data very much with the view that other economies are suggesting that we’re not seeing a significant roll over of a slowdown in the manufacturing sectors in Germany and Italy to non-manufacturing.”

But a clear move out of defensive stocks .SDEFN and into cyclicals .SCYC was evidence of risk appetite among investors. Healthcare .SXDP, utilities .SX6P and real estate .SX86P stocks, recorded some of the biggest losses on the day.

Steep declines in some stocks after weak quarterly results, also limited gains.

More than half of European companies have already reported results, with most of them beating analysts’ estimates.

Shares of Swiss airport retailer Dufry (DUFN.S) and Associated British Foods (ABF.L) topped STOXX 600 after reporting strong third-quarter results.

But Pandora (PNDORA.CO) fell 17.6%, its worst day in more than a year as it warned of a steeper-than-expected fall in sales this year.

German-Spanish company Siemens Gamesa (SGREN.MC) tumbled 8.7% to its lowest level since January after lowering its forecast for 2020.

SAP (SAPG.DE) dropped despite news that Europe’s most valuable tech company would return an extra 1.5 billion euros to shareholders next year.

Reporting by Susan Mathew and Shreyashi Sanyal in Bengaluru; Editing by Anil D'Silva and Jane Merriman

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