LONDON (Reuters) – European stocks struggled higher on Monday, shrugging off dialed-down expectations for a big U.S. rate cut this month, while escalating tensions in the Middle East boosted safe-haven assets and oil prices.

FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, July 19, 2019. REUTERS/Staff/File Photo

MSCI’s broad index of world stocks .MIWD00000PUS slipped 0.2%, pulling further away from the near-year-and-a-half high reached earlier in June after falls in much of Asia. .MIAPJ0000PUS

Europe’s regional STOXX 600 index gained 0.1%, Germany’s DAX .GDAXI and France’s CAC .FCHI rose 0.3% and Britain’s FTSE .FTSE jumped 0.5%.

Energy stocks booked the largest gains in Europe after crude oil prices jumped at least $1 per barrel, on concern that Iran’s seizure of a British tanker last week may lead to disruptions in the Middle East. [O/R]

Meanwhile, investors were shunning real estate stocks .SX86P that would benefit from lower interest rates and defensive sectors such as utilities .SX6P and telecoms .SKXP ahead of a big week for earnings.

“Sentiment about company earnings potential appears to be mixed at best, with some evidence that we might be seeing a bit of a pickup in economic data, after a slow first half of the year,” said Michael Hewson at CMC Markets.

“The pickup in U.S. economic data last week, as well as contradictory commentary from Fed officials, appears to be muddying the waters for investors about the possible reaction function of the U.S. Federal Reserve at the end of this month and whether we can expect to see a 25 basis point or 50 basis point rate cut.”

Momentum looked better for the day ahead on Wall Street. U.S. futures ESc1 NQc1 pointed to a 0.2%-0.4% higher open.

Global stocks rose toward the end of last week after dovish comments by New York Fed President John Williams boosted expectations the world’s top central bank would lower rates by 50 basis points at its July 30-31 meeting.

They gave back those gains and Wall Street shares fell after the New York Fed walked back Williams’ comments by saying his speech was not about upcoming policy action.

Hopes for a larger cut were curtailed even more after the Wall Street Journal reported the Fed was likely to cut rates by 25 bps this month, and may trim further in the future given global growth and trade uncertainties.

The dollar inched higher and U.S. Treasury yields held steady on the greater likelihood of a shallower rate cut. The dollar index .DXY gained to 97.169 against a basket of six major currencies after rising 0.4% on Friday.

The euro EUR= was little changed at $1.1217 after shedding 0.5% on Friday. The dollar edged up 0.12% to 107.82 yen JPY=. The benchmark 10-year Treasury yield US10YT=RR lingered at 2.0429%.

Still, the broad decline in equity markets limited the rise in safe-haven Treasury yields.

“A factor which could guide stocks lower this week are tweets by U.S. President Donald Trump pertaining to trade issues with China,” said Junichi Ishikawa, senior forex strategist at IG Securities. “Stocks could decline if he continues to make challenging trade comments directed at China this week.”

Trump last week by renewed a threat to impose tariffs on another $325 billion of Chinese goods, even as hopes grew that the two sides would soon resume face-to-face negotiations in a bid to end their year-long trade war.

Elsewhere in currencies, the pound edged lower before the Conservative Party chooses its new leader on Tuesday. The pound was last down 0.2% at $1.2486 GBP=D3, having declined 1.6% against the dollar so far this month. It was also lower against the euro at 89.890 EURGBP=D3.

In commodities, Brent crude futures LCOc1 and U.S. crude futures CLc1 jumped more than $1 dollar to $63.86 and $56.7 per barrel following a 1% jump on Friday.

Iran’s Revolutionary Guards on Friday captured a British-flagged oil tanker in the Strait of Hormuz after Britain seized an Iranian vessel earlier this month, further raising tensions along a vital international route for oil shipments.

Spot gold XAU= gained to $1,426.92 an ounce after rising as high as $1,452.60 on Friday, its strongest since May 2013.

Reporting by Karin Strohecker in London; additional reporting by Sujata Rao in London and Shinichi Saoshiro in Tokyo; editing by Larry King

Our Standards:The Thomson Reuters Trust Principles.

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