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European equities edged higher on Friday, rounding off another choppy week as investors focus on a vital EU summit that will discuss a mooted €750bn pandemic recovery fund.

The continent-wide benchmark Stoxx 600 gained 0.2 per cent in early dealings, putting the index on course to grind out a third consecutive week of gains. London’s FTSE 100 rose 0.3 per cent.

“Amid low summer liquidity, the uneven recovery and the persistent fears of a second wave of infections could keep volatility elevated after the strong second quarter rally,” said Emmanuel Cau, head of European equity strategy at Barclays.

He added that “all eyes are now fixed on the EU summit” over the next two days for clues on how the 27 member states resolve their differences to work towards an agreement on a coronavirus recovery fund for the bloc, alongside a renewed EU budget for 2021-27.

“We expect the recovery fund to be watered down,” warned strategists at ABN Amro, with the proposed split of €500bn for grants and €250bn for loans likely to be skewed towards becoming more evenly balanced.

The yield on 10-year German Bunds, a haven asset for the region, was steady on Friday, adding 0.01 percentage points. Yields rise as bond prices fall.

Spreads between Bunds and other European bonds — a key measure of risk in the region — have tightened since the proposal by France and Germany for a recovery fund in May, suggesting a lower level of perceived risk.

“We judge that about half of the spread tightening across the eurozone will be reversed, given our expectation that the recovery fund will be watered down,” said the strategists at ABN Amro.

Futures markets tipped US stocks to notch minor gains when trading begins on Wall Street later in the day, with the S&P 500 expected to rise 0.3 per cent.

Chinese stocks swung between gains and losses on Friday as state media sought to reassure investors on the outlook for onshore equities following their worst fall in five months.

China’s CSI 300 index of Shanghai and Shenzhen-listed stocks rose almost 2 per cent after the state-run China Securities Journal published a report that the recent fall of onshore shares was a “normal adjustment”. But the benchmark index reversed course multiple times throughout the session and closed up 0.6 per cent.

Hong Kong’s Hang Seng index was up 0.6 per cent but strategists were sceptical the gains would last due to rising US-China tensions.

Elsewhere in the region, Japan’s benchmark Topix index closed down 0.3 per cent while Australia’s S&P/ASX 200 rose 0.4 per cent.

Oil prices edged lower with Brent crude, the international benchmark, off 0.3 per cent at $43.25 a barrel.

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