Il Nuovo Postiglione - Stocks struggle tracking US trade deal prospects

European equities traded lower in early afternoon deals while Asian markets diverged, with Shanghai closing higher and Tokyo sinking more than one percent.

Japanese stocks were hit by Trump's threat of more tariffs on Japan in a row over rice and autos.

"The next few days are going to be testing times for governments in many parts of the world as they try to hammer out trade deals with the US," said Dan Coatsworth, an investment analyst at AJ Bell.

While few trade agreements have been reached, the week began with some optimism as Canada and the United States agreed to restart trade talks, after Ottawa scrapped a digital services tax.

Comments from Trump and some of his top officials also suggested some flexibility on the deadline, and that several pacts were nearly completed.

European markets ticked lower in the absence of trade deal announcements between the European Union and the United States.

"We expect risk sentiment to remain shaky until a deal is agreed... investors are on pause for now and are waiting for concrete news before making their next move," said Kathleen Brooks, research director at trading group XTB.

Eurozone inflation increased slightly last month to the European Central Bank's target of two percent, official data showed Tuesday.

The dollar remained under pressure after its worst start to the year since 1973, with confidence deteriorating among many foreign investors since Trump returned to the White House.

The Dollar Index, which compares the greenback to a basket of major currencies, fell 10.8 percent in the first half of the year, its steepest decline since the dollar became the global benchmark currency.

Investors increasingly expect the Federal Reserve to cut rates at least twice this year, and all eyes will be on US jobs data due this week.

In Asia, Shanghai rose, tracking the record highs on Wall Street the previous day, while Hong Kong was closed for a holiday.

Tokyo market drop came after Trump threatened a fresh levy on Japan over a row about the country accepting US rice exports.

Japan has seen rice prices double over the past year owing to supply issues caused by various factors, piling pressure on Prime Minister Shigeru Ishiba ahead of key elections this month.

Trump's outburst over the grain came after he had hit out at what he considered an unfair balance in the trade in cars between the two countries, and floated the idea of keeping 25 percent tariffs on autos in place.

Investors are also keeping an eye on the US president's multitrillion-dollar tax-cutting bill, which is being debated in the Senate.

Trump has urged lawmakers to pass the bill by July 4 but its passage remains uncertain due to concerns that it will add $3 trillion to deficits.

- Key figures at around 1100 GMT -

London - FTSE 100: DOWN 0.3 percent at 8,731.86 points

Paris - CAC 40: DOWN 0.3 percent at 7,645.18

Frankfurt - DAX: DOWN 0.4 percent at 23,806.87

Tokyo - Nikkei 225: DOWN 1.2 percent at 39,986.33 (close)

Shanghai - Composite: UP 0.4 percent at 3,457.75 (close)

Hong Kong - Hang Seng Index: Closed for holiday

New York - Dow: UP 0.6 percent at 44,094.77 (close)

Euro/dollar: UP at $1.1812 from $1.1785 on Monday

Pound/dollar: UP at $1.3776 from $1.373bcp2

Dollar/yen: DOWN at 142.96 yen from 143.98 yen

Euro/pound: DOWN at 85.74 pence from 85.82 pence

Brent North Sea Crude: UP 1.0 percent at $67.39 per barrel

West Texas Intermediate: UP 1.1 percent at $65.80 per barrel

F.S.Ferrari--INP