London open: Retail stocks lift FTSE 100 higher early on

London's FTSE 100 was up 0.3% at 7,757 after an hour's trade, after hitting a seven-month high the previous session. Gains were much more pronounced in Europe, however, with indices in Germany, Italy and Spain all up over 1%.

Investors will likely keep a close eye on rising tensions in the Middle East, though sentiment is continuing to be lifted by hopes that the Federal Reserve could soon make a move to loosen monetary policy. Leading indicators from the US will be in focus over the coming days, with minutes of the latest Federal Open Market Committee meeting due on Wednesday, the ADP Employment Report on Thursday and the all-important non-farm payrolls figure on Friday.

"Outside of year-end dynamics and sparsely covered Wall Street trading desks, there remains an increasing belief that Fed rate cuts, which have bullishly marked all capital market trends in the last eight weeks, are still fully ingrained in stock market sentiment," said Stephen Innes, managing partner at API Asset Management.

"While a stronger-than-expected US jobs report could shake this conviction, a reversal would require a resurgence in realised inflation, triggering a significantly more assertive hawkish stance from Chair Powell and other key figures to discourage March or May rate cuts bets."

In other news, oil prices were higher after an Iranian warship entered the Red Sea, a channel that handles around one eighth of global commerce, as nations continue to take action against Yemen's Houthi rebels who have attacked ships bound for Israel. Brent crude futures were up 1.9% at $78.50 a barrel in morning trade.

A barrage of manufacturing purchasing managers' indices (PMIs) came in mixed on Tuesday, with surveys from a host of eurozone nations beating expectations but remaining firmly in negative territory, with no end to the downturn in sight.

The HCOB manufacturing PMI for the entire eurozone improved from 44.2 to 44.4 in December – its highest in seven months but still well below the 50-point level which separates growth from contraction.

In China, official government figures pointed to a continued contraction in manufacturing while a Caixin Global report indicating a pick-up in growth. The manufacturing purchasing managers' index (PMI) from the National Bureau of Statistics declined to 49 last month, from 49.4 in November. In contrast, the Caixin manufacturing PMI rose to 50.8 from 50.7 in November, ahead of the consensus estimate pointing to a slowdown to 50.4. While growth remains marginal, this was the fourth positive reading in the past five months.

Retail stocks provide a lift

Retailers were on the rise in London, with M&S, B&M, Next and Tesco among the best performers in early deals. The corporate earnings calendar will be relatively quiet again for the whole week, but trading updates from UK high street retailers Next and B&M will be monitored on Thursday for signs of consumer buying behaviour over the key festive shopping season.

Diversified Energy Company was higher after completing the sale of producing assets in Appalachia to a special purpose vehicle, DP Lion Equity Holdco, while retaining a 20% minority interest and operational control. The transaction generated around $200m in proceeds, allowing the company to reduce its debt by 12%.

Travel stocks were alos in demand, with airlines IAG and Wizz Air, travel agent TUI and hotels giant IHG all putting in decent gains.