By Tommy Wilkes
LONDON (Reuters) - European stocks steadied on Wednesday, but sentiment remained fragile as negotiations for a Brexit withdrawal deal seemed all but dead and the U.S.-China trade dispute triggered another round of selling.
Markets dropped this on concern the U.S.-China conflict over trade and foreign policy is nowhere near a resolution and is increasingly damaging the global economy.
Asian stocks suffered their biggest fall in a week on Wednesday, following heavy losses on Wall Street and in Europe on Tuesday.
European shares managed to find a floor, however, with the pan-European Euro STOXX (STOXX) inching up 0.1%. Germany's DAX (GDAXI) rose 0.48%, France's CAC 40 (FCHI) 0.24% and Britain's FTSE 100 (FTSE) 0.28%.
Washington and Beijing are engaged in a year-long row that has expanded beyond trade policy, suggesting even more damage to a global economy that is already showing signs of slowing.
Hopes that the two sides could reach a truce this week faded after Donald Trump's administration introduced visa restrictions on Chinese officials and added more Chinese companies to a U.S. trade blacklist.
A U.S. official said high-level trade talks would still take place on Thursday and Friday as planned, but Trump has said tariffs on Chinese imports will rise on Oct. 15 if no progress is made in the negotiations.
Washington is also moving ahead with discussions about restrictions on capital flows into China, Bloomberg reported.
"U.S./China trade newsflow seemed to take a backward step ahead of important talks this week and UK/EU Brexit talks not only unravelled but the relationship between the two sides seems to be in danger of breaking down completely," said Jim Reid, an analyst at Deutsche Bank (DE:DBKGn).
"So the obvious cracks that have been appearing over more than four decades of globalisation are in danger of widening significantly in the days and weeks ahead."
U.S. stock futures (ESc1) rose 0.34%, following a 1.56% drop for the S&P 500 (SPX) on Tuesday in response to the U.S. visa restrictions.
Oil prices fell for a third consecutive day as traders worried about the impact of the U.S.-China tensions on global demand.
The U.S. Treasury yield curve steepened after U.S. Federal Reserve Chair Jerome Powell signalled further interest rate cuts and the resumption of bond purchases following a recent spike in money-market rates.
BREXIT TALKS
In Europe, talks between the European Union and Britain over an agreement to cover London's departure from the EU on Oct. 31 appeared to be going nowhere.
British lawmakers have voted to force Prime Minister Boris Johnson to seek an extension to the departure date if he cannot agree a deal, but the prospect of more prolonged political uncertainty is worrying investors.
Sterling was last up 0.5% at $1.2280
Many economists say markets have already priced in the failure to reach a deal any time soon.
"In the interminably tedious EU-UK divorce process, things are getting uninteresting. Tweets are being fired. Latin quotes are being sent out. Markets did not expect a deal to be done, and so should remain indifferent (unless it looks as if a no-deal exit will be introduced in defiance of legislation)," said UBS economist Paul Donovan.
Currency markets elsewhere were mostly quiet. With some semblance of risk appetite returning, the safe-haven dollar fell, shedding 0.3% against the euro to $1.0987 (EUR=).
The offshore yuan, which fell on Tuesday, recovered 0.3% to 7.1413 yuan per dollar
In bond markets, U.S. Treasury and euro zone government bond yields ticked higher.
The spread between two-year and 10-year Treasuries, the most common definition of the yield curve, widened to 11.3 basis points (US2US10=RR).
Spot gold prices edged higher to $1,506
Brent crude futures fell 0.34% to $58.04 a barrel (LCOc1). U.S. West Texas Intermediate crude dropped 0.34% to $52.45 (CLc1).