European Shares Slip as Investors Mull Trump Intelligence Sharing -- 2nd Update

European stocks dipped as markets opened Tuesday, despite fresh record highs for U.S. equities Monday.

The Stoxx Europe 600 index fell by 0.3% in midmorning trading, led by a 0.4% drop in France's CAC 40 index.

Reports that U.S. President Donald Trump shared intelligence secrets obtained from a close U.S. ally with Russia's foreign minister and ambassador last week could have knock-on effects for stocks, according to some analysts.

U.S. equity futures were largely flat in early morning trading in Europe, with the S&P 500 down 0.02% and Dow Jones Industrial Average futures up 0.02%.

"In terms of potential implications for the markets, finding support in Congress for fiscal measures may prove even more difficult for President Trump if the latest reports undermine his relationship with the Republicans," said Piotr Matys, foreign exchange strategist at Rabobank.

Investors have been watching Mr. Trump's legislative progress closely, less for its content, and more as a measure of how successful he is likely to be in passing broad tax reforms. In a plan proposed in April, Mr. Trump called for a 15% tax rate for all businesses.

"Without tax reform the market looks expensive. With it, the market perhaps isn't as expensive as it looks," said Andrew Acheson, portfolio manager at Pioneer Investments. "I think it is potentially vulnerable to disappointment or delay."

U.K. inflation figures for April came in higher than expected at 2.7%, the highest reading since 2013. Analysts had expected consumer prices to have risen 2.6%.

Sterling rose to as high as $1.295 immediately after the figures were released, up 0.36% against the dollar, but the move was short-lived, with the pound back to $1.286 shortly afterward, down 0.2%.

Eurozone GDP growth came in at 0.5% in the first quarter of the year, in line with what analysts had forecast, and unchanged from the reading in the fourth quarter of 2016.

Elsewhere in foreign-exchange markets, the euro again broke above the $1.10 mark, up 0.6%. The broad WSJ Dollar Index, which tracks the greenback against a basket of international currencies, was down 0.18%.

Government bond yields were little changed in the eurozone, with 10-year German bund yields rising to 0.428%, after closing at 0.395% Monday.

In Asia-Pacific markets, Chinese stocks ticked higher, with the Shenzhen A Share index up 2.1%. Korea's KOSPI index ended up 0.2%.

Japan's Nikkei 225 index rose 0.25%, but closed just shy of the 20,000 mark, which it last reached in 2015.

A boost from commodity-exposed stocks lifted Australia's S&P/ASX 200 by 0.24%.

Oil prices ended Monday up around 2% after the world's biggest crude producers, Russia and Saudi Arabia, said they agreed that production cuts should be extended into March 2018.

WTI crude oil prices continued to rise Tuesday, climbing 0.6% to $49.15 a barrel in early European trading, while Brent crude rose by 0.5% to $52.11.

Despite indications the production cap will be extended--and expectations of increased second-half demand--investors should remain cautious, said Stuart Ive, private client manager at OM Financial in New Zealand.

"OPEC meets on the May 25 so the market will want official confirmation of the deal rollover," Mr. Ive said.

Lucy Craymer contributed to this article

Write to Mike Bird at Mike.Bird@wsj.com

(END) Dow Jones Newswires

May 16, 2017 06:07 ET (10:07 GMT)