*

China stocks rise; Australia cuts rates

*

European futures at record highs

*

Investors wait on U.S-Russia talks

(Updates to Asia afternoon)

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 cutting cycle, as

expected, and the Australian dollar found support at

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

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

added 0.1%. Japan's Nikkei rose 0.5% with bank

and defence-related shares taking their 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, reckoning a long era of modest defence budgets

has ended and a rush to buy arms is beginning.

"If European defence spending gets anywhere near Trump's 5%

of GDP target, European defence companies like Rheinmetall,

SAAB, BAE Systems, Thyssenkrupp, and Thales can extend

considerably their overnight gains," said Tony Sycamore, analyst

at IG Markets in Sydney.

The euro hovered around $1.0455 in the Asia

session, though Sycamore said a sustained break of $1.0530 would

open the way to $1.06 and beyond ahead of Germany's weekend

election.

Russian and U.S. officials are scheduled to meet for

bilateral talks on Tuesday in Saudi Arabia. Ukraine's President

Volodymyr Zelenskiy has said the country would not recognise any

decisions made in deliberations where they were not present.

CHINA RALLY

U.S. markets re-open later on Tuesday following a holiday.

In China, markets have been 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.

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's ( BABA ) stock rose 2% after founder Jack Ma

was shown on television shaking hands with Xi.

BHP shares ticked 0.4% 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 rest of the week is filled with data, including February

flash business activity indicators across the globe while in

Europe, markets also have their eye on German elections this

weekend.

The yen steadied at 152.06 after the previous

day's solid growth data 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.

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

$2,913 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 $75.39 a barrel.

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

Holmes and Lincoln Feast.)