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European shares higher on reports of US-UK trade deal

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BoE cuts UK rates to after Sweden and Norway hold

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Fed caution supports dollar in FX markets

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Oil climbs out of recent trough

By Marc Jones

LONDON, May 8 (Reuters) - World shares inched higher on

Thursday, buoyed by U.S. President Donald Trump's promise of a

first trade deal in his global tariff war - tipped to be Britain

- while the dollar gained as markets pushed out the chance of

near-term Fed rate cuts.

Traders also got a widely expected quarter-point rate cut

from the

Bank of England

while

Sweden

and

Norway

also hinted they could also cut theirs later in the year

given the current global uncertainty.

Europe's main stock markets tested recent highs, led by a

more than 1% rise from Germany's export-heavy DAX and a

0.4% gain for London's FTSE, plus a small lift for

sterling against the euro, on the trade deal signals.

Trump had posted on social media that he will hold an Oval

Office press conference later on Thursday, saying it would be a

"great honor to have the United Kingdom as our FIRST

announcement".

Wall Street futures were up over 1% too, with

economists eager to see the deal's details, especially whether

the baseline 10% tariff Trump has slapped on all countries up

until now can be negotiated away.

Investors are also anxiously awaiting planned talks between U.S.

and Chinese officials in Switzerland on Saturday, which could

mark the first step in dialling down the damaging trade war

between the world's top two economies.

"There is definitely a change of tone from the U.S.

administration on both trade and Fed independence," AXA's Chief

Economist Gilles Moex said, referring to the lull the in

criticism of Fed chief Jerome Powell that rattled markets last

month.

The U.S. central bank left its interest rates in a 4.25%-4.5%

range for a third straight meeting on Wednesday alongside a

warning that the stagflationary risks of higher inflation and

higher unemployment had risen.

Powell said the Fed was in "a good place" in terms of its

policy, given that it wasn't clear if the U.S. economy will

continue its steady growth, or wilt under mounting uncertainty

and a possible spike in inflation.

"It's not at all clear what the appropriate response for

monetary policy is at this time," Powell had explained,

prompting markets to scale back the chance of a June rate cut to

just 20%, from 30% a day earlier, and price a July move at 70%,

compared with a near-certainty just a week ago.

UNCERTAINTY

In the bond markets, 10-year U.S. Treasury

yields edged up 4 bps at 4.21%, while Germany's 10-year yield

- the euro area's benchmark - also rose fractionally

to 2.50%.

The Fed's wait-and-see message also gave the dollar index a

lift. After a brief wobble in Asia, it regained traction to sit

0.4% higher in Europe right on psychological 100 points

threshold.

Trade deal hopes also saw Britain's pound climb as

much as 0.5%, although it had given most of it back by the time

the

Bank of England

lowered its benchmark rate to 4.25%.

Governor Andrew Bailey and his BoE colleagues reiterated

the need for a gradual and careful approach saying, "the past

few weeks have shown how unpredictable the global economy can

be".

But analysts think that stance could soon change. PGIM's

Guillermo Felices said his firm expects three more rate cuts

after this one as the BoE begins to put more focus on the

spillovers from the global trade war.

"The front end rates market is almost in line with our

view," he added, pointing to pricing of the next cut coming in

July plus two more before the end of the year.

TECH TALK

Overnight in Asia, MSCI's broadest index of Asia-Pacific

shares outside Japan had ended down 0.3% while

Japan's Nikkei gained 0.4% and Chinese blue chips

rose 0.5% as they continued to recover ground lost

since Trump's "Liberation Day" tariffs last month.

Wall Street was looking to build on its late rally on Wednesday

after reports that the Trump administration is planning to

rescind and modify a Biden-era rule that curbed the export of

sophisticated artificial-intelligence chips.

Nvidia ( NVDA ) shares jumped 3% although Google's stock

suffered a 7.2% tumble on reports that Apple ( AAPL )

is readying a new artificial-intelligence enhanced web browser.

In commodities markets, the trade hopes lifted oil prices

after they had fallen more than $1 on Wednesday. Brent

was at $62 per barrel, up 1.6% on the day with U.S. crude up a

similar amount too.

Safe-haven gold prices dropped 0.7% to $3,341 an

ounce on the brighter mood to edge them further away from last

month's record high of $3,500.

($1 = 0.7527 pounds)

(Reporting by Marc Jones; Editing by Chizu Nomiyama )