Hope of trade war progress help stocks bounce back but sterling hit

The pound has hit fresh 20-month lows versus the dollar as Theresa May struggles to rescue her Brexit deal with Brussels.

Sterling retreated to $1.2490 as the political crisis continued to play out - with the PM seemingly getting little in the way of public support from EU leaders over her efforts to achieve "reassurances" over the controversial backstop element.

:: 'No way to change' Brexit deal, Angela Merkel insists

European stock markets, including the FTSE 100, put on some pre-Christmas fat however on hopes of some real progress in resolving the US-China trade war.

The FTSE gained 85 points or 1.3% by the close, with miners leading the rebound though financials held back gains amid the continued Brexit uncertainty.

The CAC in Paris and German DAX were up by similar levels - with carmakers among the stocks leading the way.

US stocks were also firmly higher.

Values shot up after the Bloomberg news service cited several China sources as confirming that a proposal to reduce tariffs on US-made cars from the current 40% to 15% had been submitted to the Chinese cabinet.

A decision was expected within the next few days, it said.

President Trump said earlier this month that the concession had been agreed during his talks with his Chinese counterpart Xi Jinping at the G20 summit.

He tweeted then: "China has agreed to reduce and remove tariffs on cars coming into China from the U.S. Currently the tariff is 40%."

Beijing refused to publically acknowledge the details at the time - except to confirm that the imposition of further tariffs had been postponed pending further peace talks.

It had raised the tariffs to 40% in July as the tit-for-tat trade spat escalated - making them less attractive for its consumers as the cost was passed on by dealerships.

The consideration of the tariff U-turn was seen as helping global investors return to the market after a horrific few weeks for values - dominated not only by the trade war but also fears for the US and wider global economy.

Jitters intensified last week when it emerged the chief financial officer of China's largest technology firm, Huawei, had been arrested on a US arrest warrant in Canada over alleged sanctions violations.

:: Huawei's finance boss to fight extradition

Beijing responded by demanding Meng Wanzhou's immediate release.

News of her detention helped sour sentiment to the extent the FTSE 100 suffered a similar percentage fall to that witnessed in the immediate aftermath of the EU referendum result.

Traders said hopes of the cut in car tariffs made it less likely the arrest of Ms Meng risked derailing trade war peace efforts.

Brexit concerns continued to weigh on some UK-focused shares - especially banks and investment houses.

Commenting on the continued pressure on the pound Neil Wilson, chief market analyst at markets.com, blamed unconfirmed reports that there were enough Conservative MPs to trigger a vote of no confidence in the PM.

"Cable found support again on 1.250 and has pared losses but it's being tested and as long as chaos reigns it seems likely it will go at some stage," he wrote