London (AFP) - European stock markets traded mixed Tuesday as investors digested news of a further drop to eurozone inflation that firmed expectations of another interest-rate cut from the European Central Bank.

In Asia, Tokyo had led most stock markets higher as a weaker yen boosted Japanese exporters and helped traders recover some losses following a rout the previous session.

“An indecisive start for European equity markets has seen the region struggle for a definitive direction despite another upbeat session in Asia overnight,” noted Joshua Mahony, chief market analyst at Scope Markets.

Despite the drop, “inflation remains sticky”, he added.

The eurozone’s annual inflation rate fell to its lowest level in three-and-a-half years in September, official data showed Tuesday, dropping below the European Central Bank’s (ECB) two-percent target.

Year-on-year consumer price increases in the single currency area slowed to 1.8 percent in September, down from 2.2 percent in August, thanks to falling energy costs.

Core inflation, which strips out volatile energy, food, alcohol and tobacco prices and is a key indicator for the ECB, cooled slightly to 2.7 percent last month.

The leading eurozone stock markets diverged around midday, with Paris down 0.2 percent and Frankfurt up 0.3 percent.

Outside the eurozone, London gained 0.4 percent.

In Asia, Hong Kong and mainland Chinese bourses closed for a holiday after thundering higher over the past week on China’s new economic stimulus.

Tokyo closed up almost two percent, paring some of Monday’s nearly five-percent drop, as the yen pulled back against the dollar and gave beaten-down Japanese exporters some much needed relief.

Data showing Japanese business confidence remained positive in the third quarter also provided some support.

On Wall Street, the Dow and S&P 500 finished at fresh record-highs Monday, concluding a buoyant third quarter positively as Federal Reserve Chair Jerome Powell signalled expectations for more interest rate cuts.

Powell’s remarks followed figures last week showing the Fed’s preferred gauge of inflation slowed further in August, and ahead of key jobs figures out Friday that could determine how big the bank cuts at its next meeting.

“A somewhat weak headline jobs growth could propel markets to price in another 50-basis-point rate cut from the Fed in November,” said Charu Chanana, head of foreign exchange strategy at Saxo Capital Markets.

- Key figures around 1030 GMT -

London - FTSE 100: UP 0.4 percent at 8,269.96 points

Paris - CAC 40: DOWN 0.2 percent at 7,624.72

Frankfurt - DAX: UP 0.3 percent at 19,378.47

Tokyo - Nikkei 225: UP 1.9 percent at 38,651.97 (close)

Hong Kong - Hang Seng Index: Closed for a holiday

Shanghai - Composite: Closed for a holiday

New York - Dow: UP less than 0.1 percent at 42,330.15 (close)

Euro/dollar: DOWN at $1.1096 from $1.1137 on Monday

Pound/dollar: DOWN at $1.3317 from $1.3374

Euro/pound: UP at 83.27 pence from 83.25 pence

Dollar/yen: UP at 143.68 yen from 143.63 yen

West Texas Intermediate: DOWN 0.7 percent at $67.69 per barrel

Brent North Sea Crude: DOWN 0.4 percent at $71.30 per barrel