Portugal Colonial - Stock markets rally on New Year boost but US equities falter

While 2022 was painful for investors, there is a fear that this year could be worse, with International Monetary Fund chief Kristalina Georgieva warning a third of the global economy could slip into recession.

Yet London closed 1.4 percent higher, as traders returned from a holiday weekend to play catch-up with Frankfurt and Paris, which logged gains on both Monday and Tuesday.

German inflation eased in December for a second straight month, preliminary data showed, as government interventions helped to bring down energy prices.

But Wall Street stocks failed to hold on to gains, closing lower.

"Restrictive policy and recession fears remained front and center for investors," said Edward Moya of the OANDA trading platform.

- Starting 2023 with a bang -

"UK shares kicked off the New Year with a bang despite gloomy predictions from the head of the IMF," said AJ Bell investment director Russ Mould.

London's heavyweight energy sector was boosted by recent oil price gains, although crude futures slumped Tuesday, with traders also tracking the gas market.

"Sentiment was boosted in part because of receding concerns over a gas shortage thanks to a milder start to the winter, reducing demand for heating," said Fawad Razaqzada, analyst at City Index and FOREX.com.

And investors' eyes remain on China, where the swift removal of most zero-Covid measures sparked a massive surge in infections that filled hospitals and left crematoriums overloaded.

China's new outbreak has fanned fresh concerns for the economic outlook as businesses are forced to shut down, after already being battered by strict containment measures for almost three years.

However, after a negative start to the day, Asia's markets shifted higher with gains spilling over into Europe.

Analysts said infections may have already peaked in major cities including Beijing, where activity is picking up again.

"There will undoubtedly be more suffering and setbacks to come, but markets are always forward-looking," said Matthew Weller of StoneX.

"Based on the early evidence, China's economy could be well on its way back to 'normal' in the first quarter of the year, raising global growth as a whole for the coming year," he added.

Hong Kong stocks rallied on hopes for the city's economy ahead of an expected reopening of the border with China next week, while there were also gains in Shanghai, Taipei, Manila and Jakarta.

- Bracing for rate hikes -

But investors are also bracing for another series of central bank rate hikes in the early months this year as policymakers battle decades-high inflation.

The sharp increase in borrowing costs last year was a key reason for major pain suffered by equity markets, as traders contemplated the end of years of cheap cash.

The US Federal Reserve and others have suggested they will slow the pace of increases, but they are tipped to take rates higher than previously expected and not start cutting until later in the year or even 2024.

Friday's release of US jobs data will be closely watched for an idea of how the Fed will move next, with a strong reading likely to put pressure on the bank to keep lifting for some time.

- Key figures around 2125 GMT -

New York - Dow: FLAT at 33,136.37 (close)

New York - S&P 500: DOWN 0.4 percent at 3,824.14 (close)

New York - Nasdaq: DOWN 0.8 percent at 10,386.98 (close)

London - FTSE 100: UP 1.4 percent at 7,554.09 points (close)

Frankfurt - DAX: UP 0.8 percent at 14,181.67 (close)

Paris - CAC 40: UP 0.4 percent at 6,623.89 (close)

EURO STOXX 50: UP 0.7 percent at 3,882.29 (close)

Hong Kong - Hang Seng Index: UP 1.8 percent at 20,145.29 (close)

Shanghai - Composite: UP 0.9 percent at 3,116.51 (close)

Tokyo - Nikkei 225: Closed for public holiday

Dollar/yen: UP at 130.92 yen from 130.77 yen on Monday

Euro/dollar: DOWN at $1.0554 from $1.0654

Pound/dollar: DOWN at $1.1969 from $1.2049

Euro/pound: DOWN at 88.15 pence from 88.44 pence

West Texas Intermediate: DOWN 4.1 percent at $76.93 per barrel

Brent North Sea crude: DOWN 4.4 percent at $82.10

burs-rfj-bys/bgs

J.V.Jacinto--PC