Picture used for illustrative purpose. File

Renewed optimism over a US-China trade deal and a smaller-than-expected decline in German economic output fuelled a rally in European stocks on Tuesday, with Frankfurt shares hitting a 1-month high.

The pan-European STOXX 600 index rose 0.8% by 0711 GMT, extending this week's gains on the back of positive updates on COVID-19 treatment efforts.

Lifting sentiment, top US and Chinese trade officials reaffirmed their commitment to the Phase 1 trade deal despite diplomatic rifts between the two countries.

The trade-sensitive German DAX rose 1%, helped by data showing Europe's largest economy contracted by a record 9.7% in the second quarter, but marked a minor upward revision from an earlier estimate of -10.1%. 

READ MORE 

Tokyo stocks close higher on fresh virus hopes

Dollar slips, trade-related currencies rise on successful US-China phone call

Gold holds steady as investors look to Powell's speech

All eyes will be on the Ifo institute's business climate index for August, due to be released at 0800 GMT.

Among individual stocks, technology company Aveva Group rose 3.2% after announcing a deal to buy OSIsoft, a privately held maker of industrial software, for an enterprise value of $5 billion.

LVMH gained 1.1% after a source told Reuters the French luxury goods giant and U.S. jewellery chain Tiffany will give themselves another three months to complete their $16.2 billion tie-up.

Reuters