(MENAFN- AFP) European stock rose on Tuesday as investors took their cue from slender gains on Wall Street before this week's US Federal Reserve policy meeting, but gains were capped by Iraq fears.
In late morning deals, London's FTSE 100 index of top companies rose 0.28 percent to 6,773.53 points.
Frankfurt's DAX 30 advanced 0.84 percent to 9,967.67 points and in Paris the CAC 40 index gained 0.55 percent to 4,534.92 compared with Monday's close.
The European single currency drifted down to $1.3569, from $1.3570 late in New York on Monday.
"European stock markets are staging a mild rebound following recent weakness on the back of the Iraq conflict," said ETX Capital analyst Daniel Sugarman.
"Traders are using the recent selloff as an excuse to snap up stocks at lower prices."
All three major European indices had fallen on Monday after Islamist insurgents swept further into Iraq.
Sentiment was also spooked after Russia cut gas supplies to Ukraine.
- Focus shifting to Fed -
However, Wall Street moved higher on Monday as investors weighed the Iraq crisis and merger news ahead of the looming Federal Open Market Committee (FOMC) decision due on Wednesday.
"Focus will increasingly ... shift away from events unfolding in Iraq and the Ukraine to tomorrow's FOMC meeting," said analyst Markus Huber at broker Peregrine & Black.
"Overall sentiment remains neutral in the short-term, while the situation in Iraq is without a doubt a reason for major concern, the rise in oil prices so far has been fairly limited pointing towards optimism that the West and Iran will find a way to prevent the insurgents making further advances and for the conflict to escalate across the Middle East."
Expectations are meanwhile for the Federal Reserve to cut a further $10 billion from its monthly stimulus spending and keep interest rates at record lows.
Investors will pay particularly close attention to comments from Fed chief Janet Yellen on the bank's future policy.
"The Fed is set to downsize the bond buying programme for a fifth straight month to $35 billion - what the market is really looking for are hints and messages from the FOMC regarding upcoming monetary policy and the scope for rate rises next year," added Sugarman.
Asian equities turned mixed on Tuesday, with Shanghai hit partly by weak foreign investment figures, dealers said.
Tokyo stocks rose 0.29 percent and Seoul gained 0.40 percent.
But Shanghai slipped 0.92 percent, Sydney shed 0.21 percent and Hong Kong dropped 0.42 percent.
"European shares are trading ... on the back of mixed markets in Asia and the US and no major further escalation of the situation in Iraq overnight," added Huber.
"While not yet necessarily a new trend, very disappointing foreign investment data out of China is giving reason for concern and might be pointing towards further weakness in the Chinese economy in the months ahead."
- Sterling slips on data -
In foreign exchange activity, the British pound retreated on news of slowing inflation.
"The pound has dropped back as some traders scale back expectations of a 2014 (interest) rate hike," noted IG analyst Chris Beauchamp.
Britain's 12-month inflation rate slowed to 1.5 percent in May, which was the lowest level for four and a half years, official data showed.
The Consumer Prices Index inflation measure ticked down to 1.5 percent in May from 1.8 percent in April.
In reaction, the pound dipped to $1.6954, down from $1.6979 on Monday - when it had briefly hit a five-year high above $1.70 on hopes of an interest rate hike within the next six months.
The euro meanwhile advanced to 80.02 British pence from 79.91 pence.
The latest figures mark the sixth month in a row when the rate has been at or below the Bank of England's 2.0-percent target.
The BoE has kept its key interest rate at a record low 0.50 percent since March 2009, in order to stimulate economic growth.
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