The U.S. administration will delay imposing a 10% tariff on certain Chinese products, including laptops and cell phones, beyond September, the Office of the U.S. Trade Representative said on Tuesday. A separate list also included some imports that would be exempted altogether from tariffs.
That supported a move back to riskier assets after a cocktail of negative drivers had pressured markets for the past few sessions.
Commodity stocks <.SXPP>, automakers <.SXAP> and tech sectors <.SX8P> were among the biggest gainers in Europe, and helped the pan-European STOXX 600 index close up 0.5%, erasing session losses of up to about 0.8%.
"What we are seeing now with this announcement is a clear positive development," said Ken Odeluga, market analyst at City Index. "This definitely counts as a relief to markets because... this announcement shows the willingness to compromise from both sides."
But Odeluga doubts the longevity of Tuesday's rally given recent volatility in markets spurred by recession fears, worsening Hong Kong tensions and a crash in Argentine markets.
Export-reliant Germany's DAX <.GDAXI> rose 0.6% on the U.S. news, recovering after data showed plunging economic sentiment among German investors. Investors will be closely watching Wednesday's second-quarter economic growth data to see if Europe's biggest economy is headed for recession.
The easing in trade tensions also lifted oil prices which saw energy stocks being among the top gainers on STOXX 600.
Italian shares <.FTMIB>, troubled by political turmoil, rose more than 1% as banks <.FTIT8300> rose with Monte Dei Paschi up 7.2%.
Right-wing League leader Matteo Salvini's drive for early elections in Italy hit a road bump on Monday with parliamentary party leaders failing to decide when the Senate should debate his no-confidence motion in the government.
"I think we're going towards a technical government... that brings Italy to elections in an orderly fashion, securing public finances, which can help reduce the damage," said Carlo Franchini, head of institutional clients at Banca Ifigest.
In corporate news Henkel shares slid to the bottom of the pan-region index after the German consumer goods company lowered its full-year outlook for sales and earnings.
(Reporting by Agamoni Ghosh, Shreayshi Sanyal, Susan Mathew in Bengaluru and Danilo Masoni in Milan; Editing by Bernard Orr)
By Susan Mathew and Shreyashi Sanyal