*

European stocks at record highs, defence stocks rally

*

Euro zone borrowing costs rise on spending boost

expectations

*

Gold gains on U.S. tariff uncertainty, inflation worries

*

European futures at record highs

*

Investors wait on U.S-Russia talks

(Updates all prices)

By Naomi Rovnick and Tom Westbrook

LONDON/SINGAPORE, Feb 18 (Reuters) - European shares hit

record highs on Tuesday as defence stocks soared on expectations

of a spending bump and as investors switched more cash into

non-U.S. markets to avoid the inflationary pressures of trade

tariffs.

The pan-European STOXX 600 index hit an all-time

high of 556.81 points as a gauge of defence and aerospace stocks

climbed about 1% after rallying nearly 4.6% on Monday

on signs of European moves to relax military spending limits.

Wall Street's S&P 500 benchmark stock index was set for a

lacklustre session when U.S. markets re-open from a holiday

break later in the day, futures trading implied, after a

Federal Reserve official advocated delaying interest rate cuts.

Key measures of U.S. inflation are running at a half

percentage point or more above the Fed's goal, while anxiety

about Chinese artificial intelligence competition hangs over the

big tech stocks that dominate U.S. indices.

European stocks have just had their biggest weekly investment

inflow since January 2023, Bank of America said, in part because

Europe's indices have heavy weightings of industrial stocks that

would benefit from continuing U.S. economic growth.

"The idea is very simple: overvalued U.S. tech (and)

attractive value in Europe," Lombard Odier Investment Managers

multi-asset portfolio manager Florian Ielpo said.

"That old (economy) world now looks very attractive."

Euro zone governments' borrowing costs rose, however, with

Germany's benchmark 10-year bond yield, which moves

inversely to the price of the security, touching 2.51%, its

highest since January 31.

This came after EU Commission President Ursula von der Leyen

said the region would step up support for Ukraine and as the

U.S. and Russia headed into bilateral talks on a prospective

peace deal that Kyiv warned could not be made on its behalf.

"The pressures on Europe to substantially increase defence

spending have escalated rapidly over the last week," Deutsche

Bank economist Mark Wall said in a note to clients.

The spot gold price gained 0.5% to $2,911.4 an ounce

and U.S.-traded gold futures for April delivery added

0.8% to $2,923 as investment bank Goldman Sachs ( GS ) raised its price

forecast for the yellow metal to $3,100 by the end of the year.

CHINA RALLY

In Asia, Japan's Nikkei rose 0.5% with bank and

defence-related shares taking their cues from Europe's gains.

Chinese markets were buoyed by Monday's rare meeting between

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

its highest since October and an index of tech shares

hit a three-year high before some selling kicked in.

The tech index is up more than 25% for the year to date,

turbocharged by gains in artificial intelligence stocks.

"I believe that China will be the winner in the AI race,

just like electric cars," said Britney Lam, who is running a

family office, LAM Group, based on China's access to data,

energy, talent and computer chips.

Australia's central bank also began its rate cutting cycle

on Tuesday as expected, keeping the Australian dollar

steady at $0.6356 as policymakers presented the cut with caution

on further easing.

The euro gained 0.2% to $1.0455, with traders

looking ahead to German elections this weekend that could spur

fiscal stimulus to support the flailing economy.

The Japanese yen softened a touch and was last at to 151.86

per dollar, though remained at the strong end of its

recent range, supported most recently by Monday's solid growth

data which bolstered chances of a rate hike in Japan in coming

months.

The pound traded at around $1.2597, just below its

highest level in two months, as investors looked towards

employment and inflation data later in the week.

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 rose 0.77% to $75.82 a barrel.