LONDON- European and US stock markets leapt on Friday as positive signs emerged from US-China trade talks aimed at averting an escalation of a tariff war between the world’s top two economies.

US President Donald Trump said the negotiations in Beijing were going “extremely well” and his Chinese counterpart Xi Jinping announced the talks would continue in Washington this week.

Trump also said there was a “possibility” he would extend a March 1 deadline for a sharp rise in tariffs on US$200 billion Chinese goods to go into effect.

The Dow Jones Industrial Average index finished the day up 1,7 percent to 25 883.25 to close its eighth straight week of gains.

“There is a lot of optimism that a deal will be done,” said Bill Lynch on Hinsdale Associates. “I’ll believe it when I see it but it seems that a deal is fairly close.”

Investors also greeted Trump’s decision to sign a spending bill that averts another government shutdown.

Meanwhile, Trump’s decision to declare a national emergency to fund a wall along the Mexican border, which is expected to face legal challenges, is a “side issue,” Lynch said.

European markets also “went gaga” for the news of further trade talks, as Frankfurt’s DAX 30 closed up 1,9 percent and the Paris CAC 40 followed suit with a 1.8 rise on the day.

Madrid’s IBEX 35 index rose 2,0 percent after Spanish Prime Minister Pedro Sanchez called an early general election, following the rejection of his draft budget in parliament over the Catalan secession crisis.

London’s index also rose after stronger than expected British retail sales were reported for January, as consumers seemed to shrug off Brexit blues.

Oil prices continued to push higher on evidence members of the Organisation of the Petroleum Exporting Countries are implementing production cuts. Brent oil futures finished at US$66,25 a barrel, up 2,6 percent for the day and 6,7 percent for the week.

After a brutal end of 2018, US stocks have been on a tear since late December on expectations of a US-China trade deal and relief at the Federal Reserve’s shift to a more dovish posture.

These views have allowed the market to overlook signs of weakness, such as Federal Reserve data on Friday that showed a big drop in US manufacturing for January. – AFP