Europe close: Late rally drives markets higher, but London stocks fall

(Sharecast News) - European stocks rallied in afternoon trade to finish Tuesday's session in positive territory, though investors remained cautious as global markets continued to digest the fallout of Trump's tariff rampage.

The Stoxx 600 finished 0.3% higher at 536.28, having dropped more than 0.6% in morning deals.

Strong gains in Milan and Madrid provided some support, with the FTSE MIB and IBEX 35 both closing 1.4% higher; mild gains were seen in Frankfurt (+0.4%) and Paris (+0.7%); while London stocks fell 0.2% with heavyweights Vodafone and Diageo providing a drag.

Markets fell sharply on Monday after Donald Trump's protectionist measures spooked investors, with Washington's decision to impose trade tariffs on Canada, Mexico and China exacerbated by a threat to extend to the policy to the European Union and UK.

Jitters eased slightly when Trump announced a 30-day pause on his plans for Mexico and then Canada after both countries agreed to take steps toward preventing the trafficking of the opioid fentanyl into the US.

China, however, retaliated with tariffs of its own, with a 10% levy on American crude oil, agricultural machinery, large-displacement cars and pickup trucks. There will also be 15% tariffs on coal and liquefied natural gas, as well as an investigation into Google.

"As far as investors are concerned, stock indices have had two big shocks in a row: DeepSeek last week, and tariffs this one. Both events didn't come out of nowhere, yet the market reactions certainly did," said David Morrison, senior market analyst at Trade Nation.

"This suggests that investors are getting nervous up here. That's not to say that stock indices can't rally further. But it certainly is a warning for bullish investors to take extra care."

Market movers

Infineon Technologies was the high riser of the day on the Stoxx 600, surging 10% after the German chipmaker's first-quarter revenue beat analyst estimates, while compatriot manufacturer Kion soared on strong 2024 results.

Danish biotech group Bavarian Nordic slumped 9% after underwhelming with its annual results which showed weaker-than-expected earnings guidance, prompting a ratings downgrade by Nordea from 'buy' to 'hold'.

Shares in UBS fell 7% even though the Swiss banking group beat forecasts with its fourth-quarter profits and announced plans to buy back $3bn of stock. According to analysts at Citi, results were "decent" but "perhaps not as good as at first glance".

London-listed Vodafone dropped 7% after a fall in German sales worsened in the third quarter, despite better regional performances in Turkey, Africa and the UK.

Also in the UK, beverages giant Diageo disappointed after pulling its medium-term guidance ahead of incoming tariffs on Mexican and Canadian imports by the Trump administration, saying it cannot yet accurately predict how additional duties will affect its financial performance.