London (AFP) - Stock markets mostly pulled back Thursday as an early year rally ran out of steam, but a solid start to Wall Street trading helped European markets pare losses.

The geopolitical outlook remained a major uncertainty for traders after the United States toppled Venezuela’s president, and as China targeted Japanese imports following Tokyo’s voicing support for Taiwan.

Defence stocks, however, saw some sharp gains after President Donald Trump called for a 50-percent hike of the US defence budget next year.

Top American defence companies such as Lockheed, Raytheon and Northrop saw their stock rise by up to around five percent in US trading.

In Europe, Britain’s BAE Systems jumped around six percent, while Germany’s Rheinmetall and Italy’s Leonardo also bucked the overall weaker trend.

Investors were awaiting the release of US data on non-farm payrolls Friday, a crucial guide for Federal Reserve decision-makers. They meet at the end of the month amid debate on whether they will cut interest rates for a fourth successive time.

“With a March rate cut essentially priced in as a coin-toss, tomorrow’s jobs report does provide the basis for a potential market-moving event if we see any particularly strong deviation from expectations,” said Joshua Mahony, chief market analyst at Scope Markets.

Equity markets in Asia struggled Thursday, Hong Kong, Shanghai and Tokyo all closing lower.

Tokyo stocks were weighed down after China announced an anti-dumping probe into imports from Japan of a key chemical used to make semiconductors.

The move comes with the two Asian giants at loggerheads since Japanese Prime Minister Sanae Takaichi suggested in November that Japan may react militarily in any attack on Taiwan.

Seoul edged higher to another record close, though tech giant Samsung fell back after saying it expected its fourth-quarter profit to reach a record $13.8 billion.

Oil prices rebounded after suffering a second steep fall in a row Wednesday on Trump’s comments that Venezuela would turn over millions of barrels to the United States following its ouster of President Nicolas Maduro.

Traders will also be keeping an eye on a US Supreme Court ruling due Friday on the legality of Trump’s punishing tariffs.

The landmark case on his unprecedented use of powers for sweeping global levies strikes at the heart of his economic agenda. A tariffs reversal could further upend US trade with countries worldwide.

- Key figures at around 1540 GMT -

New York - Dow: UP 0.5 percent at 49,224.97 points

New York - S&P 500: DOWN 0.1 percent at 6,914.99

New York - Nasdaq: DOWN 0.7 percent at 23.431.01

London - FTSE 100: FLAT at 10,044.69 (close)

Paris - CAC 40: UP 0.1 percent at 8,243.47 (close)

Frankfurt - DAX: FLAT at 25,127.46 (close)

Tokyo - Nikkei 225: DOWN 1.6 percent at 51,117.26 (close)

Hong Kong - Hang Seng Index: DOWN 1.2 percent at 26,149.31 (close)

Shanghai - Composite: DOWN 0.1 percent at 4,082.98 (close)

Euro/dollar: DOWN at $1.1660 from $1.1682 on Wednesday

Pound/dollar: DOWN at $1.3430 from $1.3462

Dollar/yen: UP at 156.94 yen from 156.60 yen

Euro/pound: DOWN at 86.78 from 86.80 pence

Brent North Sea Crude: UP 2.0 percent at $61.15 per barrel

West Texas Intermediate: UP 1.8 percent at $57.01 per barrel

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