European shares break record highs on Ukraine peace hopes

Asian shares and the dollar steadied on Tuesday, as traders waited on a rate cut in Australia and company earnings in China, while European shares marked record highs on the prospect of ramping up defence spending to back up any Ukraine peace deal.

The Australian dollar stood near a two-month high ahead of a central bank rate decision due at 0330 GMT. Markets have priced about an 89 percent chance of a 25 basis point rate cut.

S&P 500 futures were up 0.2 percent and European futures were flat in Asia morning trade. Japan's Nikkei rose 0.3 percent.

Overnight, the pan-European STOXX 600 index closed 0.5 percent higher as a gauge of defence and aerospace stocks surged 4.6 percent to lifetime peaks, having already more than doubled in value since Russia invaded Ukraine three years ago.

Investors expect earnings in the industry to continue to rise strongly, driven by a significant surge in defence budgets to meet new security needs - which analysts have dubbed a "supercycle" for the sector.

"A resolution to the conflict in Ukraine could deliver positive growth impulses for Europe, including improved consumer confidence, lower energy prices, and easier financial conditions," Bruno Schneller, managing director at Erlen Capital Management.

US markets were closed overnight for a public holiday.

Europe's banks were also in demand, up 1 percent and flying to 17-year highs, helped by a rise in bond yields.

French President Emmanuel Macron on Monday hosted an emergency summit on Ukraine after US officials suggested Europe would have no role in any talks this week in Saudi Arabia aimed at ending the conflict.

Britain said it was ready to send peacekeeping troops to back up any deal, while Russian and US officials prepared to meet for their own competing talks on Tuesday in Saudi Arabia.

Ukraine's President Volodymyr Zelenskiy said on Monday that the country would not recognise any decisions made in deliberations where they were not present.

REUETRS