Mexico's peso rallied against the dollar in response to news that the US had dropped threatened tariffs on imports from the country

London (AFP) - Stock markets rose Monday, building on strong pre-weekend gains, after US President Donald Trump dropped threatened tariffs against Mexico and weak US jobs data fanned expectations the Federal Reserve will cut interest rates next month.

In foreign exchange, the dollar recovered against major rivals after dipping Friday – and Mexico’s peso rallied more than two percent against the US unit.

Separately, the pound was knocked by official data showing UK gross domestic product contracted 0.4 percent in April on a slump in manufacturing amid Brexit uncertainty.

“President Donald Trump’s announcement that he is suspending the five-percent tariff on Mexico which was scheduled for today is prompting a recovery in equity markets,” said VTB Capital economist Neil MacKinnon.

“From an economic point of view, an increase in tariffs is like a tax increase… Higher tariffs negatively affect world trade and global GDP growth,” he explained in a client note.

Observers pointed out, however, that the US-China trade stand-off remains unresolved ahead of a possible meeting between Trump and Chinese counterpart Xi Jinping at a summit of the Group of 20 top economies in Japan later this month.

“The focus will now shift back to the G20 and China,” said strategists at TD Securities.

“Despite the positive result with Mexico, the US-China trade dispute is a different creature, and tensions remain high.”

At the weekend, finance ministers of the G20 issued a communique saying “growth remains low and risks remain tilted to the downside”.

It added that “trade and geopolitical tensions have intensified” but they “stood ready to take further action” if needed.

Markets reacted also to Friday data showing the United States added only 75,000 net new positions in May, fewer than half the 180,000 economists had been expecting.

It came after Fed policymakers last week sent signals about being open to cutting US interest rates amid signs of weakness in the economy.

Elsewhere, oil prices steadied after Friday’s sharp gains, which came after Saudi Arabia and Russia said they would continue with their output caps.

However, analysts warned the China-US trade war and concerns about weakening demand growth would keep prices under pressure.

On the corporate front, shares in embattled Thomas Cook surged after the British travel company said it had received a takeover approach for its tour-operator business from Chinese tourism group Fosun.

After surging 20 percent in early London business, they settled at a gain of around 15 percent on the day in closing trade.

- Key figures around 1540 GMT -

London - FTSE 100: UP 0.6 percent at 7,375.54 points (close)

Frankfurt - Closed for German holiday

Paris - CAC 40: UP 0.3 percent at 5,382.50 (close)

EURO STOXX 50: UP 0.2 percent at 3,386.45

New York - Dow: UP 0.7 percent at 26,161.72

Tokyo - Nikkei 225: UP 1.2 percent at 21,134.42 (close)

Hong Kong - Hang Seng: UP 2.3 percent at 27,578.64 (close)

Shanghai - Composite: UP 0.9 percent at 2,852.13 (close)

Euro/dollar: DOWN at $1.1311 from $1.1335 at 2030 GMT Friday

Pound/dollar: DOWN at $1.2685 from $1.2736

Dollar/yen: UP at 108.53 yen from 108.15

Oil - Brent Crude: UP 4 cents at $63.33 per barrel

Oil - West Texas Intermediate: UP 21 cents at $54.20