Europe close: Stocks get out of jail as dollar dents euro

European stocks showed up late on Tuesday after the euro was sent packing as Federal Reserve chairman Jerome Powell suggested US interest rates will continue to rise in spite of any uncertainty over trade policy.

Reversing earlier losses, the benchmark Stoxx 600 index closed 0.2% higher at 384.98, as Germany's DAX erased an initial dip to rise 0.8% to 12661.54, while France's CAC 40 did similar but only gained 0.2%, Italy's MIB jumped 0.7% and Spain's Ibex closed just on the right side of flat. London's FTSE gained 0.3%.

Ahead of the first of two days of his semi-annual Congressional testimony, Powell said in his written report that "For now, the best way forward is to keep gradually raising the federal funds rate."

This, plus Powell's generally optimistic tone on the outlook for the US economy, as well as positive US industrial production data earlier, helped fire the dollar higher at the dollar and sterling's expense.

"A strengthening dollar has left other markets in its wake today, with weakness in EURUSD and GBPUSD also being joined by an 18-month low for gold," said IG market analyst Joshua Mahony.

He added: "Markets will no doubt welcome the announcement that Donald Tusk is planning to travel to Washington next week in a bid to improve trade relations. We have seen precious few signs that Trump is willing to bow to any pressure from the EU, with Germany expected to have the final say on whether they would be willing to make concessions on trade with the US."

Analyst Michael Hewson at CMC Markets added that confirmation that the EU and Japan had inked a new trade deal hardly registered in early trading, with stock benchmarks only becoming positive bias as the US dollar edged up in the afternoon.

In corporate news, Casino rallied after the French supermarket retailer said sales accelerated in the second quarter thanks to an improvement in its core French market and in Brazil, while Thyssenkrupp gained after its chairman quit, raising expectations of a restructuring at the company.

Swedish medical technology company Getinge surged after a sales update, while in London, Royal Mail rallied as it warned that annual addressed letter volumes would decline more than expected due to the impact of the GDPR, but said trading in the first quarter was in line with its expectations

On the downside, Norway's Telenor declined after its second-quarter results fell short of expectations and Swedish manufacturer Husqvarna was under the cosh after the power tools maker's second-quarter numbers missed forecasts.