European shares recover; French luxury stocks hit by U.S. tariff threat

• London's FTSE slipped 0.5pc, falling for the fourth straight session as miners.
• The U.S. was never going to be happy with France applying a digital services tax.
• Trade-sensitive German shares climbed 0.8pc, with help from tech heavyweight SAP and chipmakers.

European shares bounced back on Tuesday from their sharpest decline in two months in the previous session, boosted by technology stocks, but gains were capped as investors grappled with prospects of fresh global trade disputes.

Trade-sensitive German shares climbed 0.8pc, with help from tech heavyweight SAP and chipmakers, while Italy's blue-chip index gained 1pc after a slew of positive corporate updates.

Paris-listed stocks rose only marginally after the U.S. government said on Monday it may impose punitive duties of up to 100pc on $2.4 billion in imports from France, including Champagne, handbags and cheese, after concluding that France's new digital services tax would harm U.S. tech companies.

Shares in luxury stocks LVMH, Kering and Hermes fell about 1.5pc, with France and the European Union saying they were ready to fight back.

"We knew that the U.S. was never going to be happy with France applying a digital services tax," said Craig Erlam, a senior market analyst at Oanda.

"The timing of these things is always a surprise and maybe the fact he set it to a 100pc is potentially higher than people were anticipating."

That followed the World Trade Organization rejecting European Union claims that it no longer provides subsidies to planemaker Airbus, prompting the United States to say it could increase retaliatory tariffs on a wider range of European goods.

The broader European stocks index, however, rose 0.4pc, recovering from their worst selloff since Oct 2. on Monday, following U.S. President Donald Trump's move to restore tariffs on metal imports from Brazil and Argentina.

A set of weak U.S. manufacturing numbers also added to the gloom on Monday, wiping out gains for December in what could have been the STOXX 600 index's fourth monthly gain in a row.

London's FTSE slipped 0.5pc, falling for the fourth straight session as miners, and oil and gas companies took a toll from Trump's latest tariff threats.

Among the bright spots, Italy's biggest bank UniCredit  rose 1.2pc after saying it would buy back its stock this year and shed 9pc of staff under a new plan to 2023 to cut costs by 1 billion euros ($1.1 billion) in Western Europe.

Shares in Italy's utility company Enel gained 1pc after sources reported it had became another bidder, along with France's Engie and Italy's ERG to buy Renvico wind farm portfolio in Italy and France.