World stocks held near two-month lows on Tuesday as slightly more optimistic comments from US and Chinese officials on trade brought some comfort, a day after equities suffered their worst selloff so far this year.

Fear the United States and China are spiraling into a fiercer, more protracted trade dispute that could derail the global economy has rattled investors in recent weeks. The sell-off accelerated on Monday after China announced plans for retaliatory tariffs.

But the Chinese government’s top diplomat said China and the United States have the “ability and wisdom” to reach a trade deal that is good for both. US President Donald Trump said he was optimistic about resolving the trade dispute.

Those signals were enough for now to provide respite to battered markets.

European shares rebounded from two-month lows with London, Frankfurt and Paris 0.5% to 1% higher. And having tumbled more than 2% on Monday, US stock futures suggested Wall Street shares were headed for a stronger open.

“The trade war is driving markets at the moment,” said Rory McPherson, head of investment strategy at Psigma Investment Management in London.

“Markets were prone to a selloff after a good start to the year on expectations of policy easing from central banks and no escalation of trade tensions, and it’s this latter pillar that has come away.” Asian shares opened weaker but closed off the lows, thanks to the more upbeat official tone.

Japan’s Nikkei stock index fell to its lowest since mid-February. MSCI’s index of Asian shares, excluding Japan, lost 1%, dragged to three-month lows by a selloff in China.

MSCI’s world index was stuck near its lowest levels in around two months.

Markus Huber, a trader at City of London Markets, said he expected a deal that would allow both sides to save face.

“However, I think traders might underestimate the consequences if there is no deal and furthermore, tough trade negotiations between the US and the EU are still to follow later this year, which could spell new turmoil for stocks.” Trump has said he would meet with Chinese President Xi Jinping during a G20 meeting at the end of June.

Investors’ trade war fears have clearly intensified - Bank of America Merrill Lynch’s monthly survey showed equity allocations falling sharply in May and a record number of funds saying they were hedged against a sharp stock market fall.

The number of participants who identified trade war as the main risk for markets rose as well.

In another sign trade tensions are hurting the economic outlook, Germany’s ZEW institute said investors’ mood had deteriorated unexpectedly in May.

Yields on 10-year German government bonds headed back towards Monday’s six-week lows after the ZEW data. US 10-year Treasury yields, however, edged away from Monday’s six-week lows, thanks to the slightly brighter tone. They rose back above shorter-dated three-month bill yields after the yield curve inverted on Monday for the second time in less than a week.

That move underscored worries about the economic impact of a trade war − a sustained inversion of that part of the yield curve has preceded every US recession in the past 50 years.

The safe-haven yen lost ground as the mood improved, with the dollar strengthening 0.4% against the Japanese currency to 109.67. China’s yuan and the Australian dollar also regained some poise, with the former breaking a six-day losing streak.

Elsewhere, oil prices rose with Brent crude up around 1% at $71 per barrel. Gold prices slipped 0.25% to $1.296,44 per ounce.President Donald trump vowed Tuesday to help hard-hit American farmers caught in the middle of the escalating trade war between Washington and Beijing.

China on Monday hit back against the United States, announcing it will sharply increase duties on thousands of US agricultural and manufactured goods to retaliate against trump’s decision last week to more than double the punitive duties on hundreds of billions of dollars in Chinese merchandise.

“Our great Patriot Farmers will be one of the biggest beneficiaries of what is happening now,” trump said on Twitter.

“Hopefully China will do us the honour of continuing to buy our great farm product, the best, but if not your Country will be making up the difference based on a very high China buy.” Since last year, the trade war has gutted US farm exports to China and weighed on both countries’ manufacturing sectors.

The trump administration last year offered $12 billion in compensation to American farmers and has vowed to do more, using the revenues from the new tariffs − which he incorrectly claims is paid by China rather than US importers.

“This money will come from the massive Tariffs being paid to the United States for allowing China, and others, to do business with us. The Farmers have been ‹forgotten’ for many years. Their time is now!” trump launched the trade war last year to extract profound economic reforms from Beijing and reduce the US trade deficit. He accused China of seeking to dominant global industries through massive state subsidies and theft of American technology − in violation of its commitments upon joining the World Trade Organization in 2001.

Agencies