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China stocks rise; Australia cuts rates

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European futures at record highs

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Investors wait on U.S-Russia talks

(Updates to Asia morning)

By Nell Mackenzie and Tom Westbrook

LONDON/SINGAPORE, Feb 18 (Reuters) - European futures

hit record peaks on Tuesday as defence stocks soared on

expectations of a spending bump, while Hong Kong shares were on

the verge of three-year highs as investors cheered business

leaders' meeting with President Xi Jinping.

Australia's central bank began its rate cut cycle, as

expected, and the Australian dollar found support at

$0.6350 as a cut came with caution on further easing.

S&P 500 futures were up 0.2% and European futures

were up 0.1%. Japan's Nikkei rose 0.5% with

bank and defence-related shares taking cues from Europe's rally.

On Monday, the pan-European STOXX 600 index closed

0.5% higher as a gauge of defence and aerospace stocks

surged 4.6% to lifetime peaks, having already more than doubled

in value since Russia invaded Ukraine three years ago.

Investors expect earnings in the industry to continue to

rise strongly, driven by a significant surge in defence budgets

to meet new security needs - which analysts have dubbed a

"supercycle" for the sector.

Hopes for an end to hostilities in Ukraine also improved

sentiment in other sectors in Europe.

"A resolution to the conflict in Ukraine could deliver

positive growth impulses for Europe, including improved consumer

confidence, lower energy prices, and easier financial

conditions," Bruno Schneller, managing director at Erlen Capital

Management.

French President Emmanuel Macron on Monday hosted an

emergency summit on Ukraine after U.S. officials suggested

Europe would have no role in any talks this week in Saudi Arabia

aimed at ending the conflict.

Britain said it was ready to send peacekeeping troops to

back up any deal, while Russian and U.S. officials prepared to

meet for their own talks on Tuesday in Saudi Arabia.

Ukraine's President Volodymyr Zelenskiy said on Monday that

the country would not recognise any decisions made in

deliberations where they were not present.

DELAYED THREATS

U.S. markets were closed overnight for a public holiday.

In China, markets have been buoyed by Monday's rare meeting

between Xi and business leaders. Hong Kong's Hang Seng

rose 1.8% to its highest since October and an index of tech

shares stood near three-year highs.

Shares in Baidu ( BIDU ) steadied following their slide on

Monday after the founder of the search engine giant was not

spotted at the meeting. The company reports earnings later in

the day. Alibaba ( BABA ) is due to report later in the week.

BHP shares ticked 0.6% higher after the global

miner logged its lowest first-half profit in six years, but said

it saw signs of economic recovery in China.

The imminent threat of reciprocal U.S. tariffs has receded

until April, but the risk that they might include levies based

on value-added taxes in other countries was a major worry.

The Financial Times reported on Sunday that the European

Commission would explore tough import limits on certain foods

made to different standards in an effort to protect its farmers,

echoing U.S. President Donald Trump's reciprocal trade policy.

The rest of the week is filled with key data releases,

including February flash business activity data across the globe

while in Europe, markets also have their eye on German elections

this weekend.

The euro hovered just below $1.05, while the yen

was firm at 151.74 after solid growth data bolstered

chances of a rate hike in Japan in coming months.

The pound traded at around $1.26033, just below its

highest level in two months, as investors looked towards

employment and inflation data later in the week.

In commodity markets, gold came off Friday's record highs at

$2,895 an ounce having rallied for seven weeks straight.

Oil producer group OPEC+ is considering pushing back a

series of monthly supply increases due to begin in April despite

calls from Trump to lower prices, Bloomberg News reported on

Monday, citing delegates.

Brent held overnight gains at $75.42 a barrel.

(Reporting by Nell Mackenzie and Tom Westbrook; Editing by Sam

Holmes and Lincoln Feast.)