London (AFP) - Stock markets diverged Tuesday as dealers mulled fears the Federal Reserve would push interest rates higher than expected and for longer as it battles stubbornly-high inflation.
Oil prices rebounded, while the pound extended gains won on Brexit deal alterations aimed at smoothing some trading obstacles between the UK and the European Union.
Prime Minister Rishi Sunak and European Commission president Ursula von der Leyen on Monday agreed a sweeping overhaul of trade rules in Northern Ireland, which borders EU member Ireland.
Asia and Europe struggled to track overnight advances on Wall Street ahead of further US economic data due this week.
Recent figures showing a robust US jobs market and inflation not coming down as quickly as hoped have spooked traders this month as they bet on more US interest rate hikes, wiping out most of January's equities rally.
"It hasn't been the most thrilling start to the week but that didn't stop investors from piling back into stocks on Monday in the hope that January data proves to be an anomaly," said Oanda analyst Craig Erlam.
"That enthusiasm didn't flow through" to Tuesday, he added.
Principal Asset Management analyst Seema Shah cautioned that it was "increasingly clear" that the Federal Reserve "is not yet finished with rate hikes".
"Relentless monetary tightening will eventually weigh on both the economy and earnings -- a headwind that will, inevitably, renew and extend the equity market drawdown," she cautioned.
London stocks were weighed down Tuesday also by poor results from online supermarket Ocado.
Ocado shares slumped 7.6 percent to 577.20 pence in midday trade, topping London's fallers after revealing it doubled losses last year as customers cut spending in response to rising prices.
Elsewhere, Frankfurt and Paris edged higher in early afternoon deals.
Key figures around 1220 GMT
London - FTSE 100: DOWN 0.5 percent at 7,897.90 points
Frankfurt - DAX: UP 0.2 percent at 15,405.25
Paris - CAC 40: UP 0.1 percent at 7,303.60
EURO STOXX 50: UP 0.3 percent at 4,259.93
Tokyo - Nikkei 225: UP 0.1 percent at 27,445.56 (close)
Hong Kong - Hang Seng Index: DOWN 0.8 percent at 19,785.94 (close)
Shanghai - Composite: UP 0.7 percent at 3,279.61 (close)
New York - Dow: UP 0.2 percent at 32,889.09 (close)
Pound/dollar: UP at $1.2099 from $1.2064 on Monday
Euro/pound: DOWN at 87.69 pence from 87.94 pence
Euro/dollar: UP at $1.0612 from $1.0609
Dollar/yen: UP at 136.74 yen from 136.19 yen
Brent North Sea crude: UP 1.3 percent at $83.48 per barrel
West Texas Intermediate: UP 1.6 percent at $76.90 per barrel
