European stocks rebounded Tuesday after declines in the previous session on concerns about a more spreadable strain of coronavirus emerging in the UK.
The regional Stoxx 600 index rose 1 percent at the start of trading after falling 2.3 percent on Monday when more than 40 countries closed their borders to British travelers. The German Xetra Dax rose by 1.2 percent and the British FTSE 100 by 0.3 percent.
"Markets are trying to balance short-term risk with the long-term prospect for coronavirus vaccines to be effective next year," said Emmanuel Cao, head of European equity strategy at Barclays.
He added that investors were worried about selling a vaccine-led stock rally too soon. “In such an environment, people buy the dip when the market pulls back. The direction of travel is still towards a return to normal as long as the effectiveness of the vaccine is not challenged by this new strain of virus. "
Randeep Somel, portfolio manager at M & G, warned that market movements in the days leading up to Christmas were often sharper than usual due to the low trading volume.
"We have now reached the period where stocks are generally very thinly traded, so any issue is magnified in any direction, and it will likely stay that way through the first full week of January."
Market sentiment also grew more optimistic after the World Health Organization said Monday evening that while the new variant of the coronavirus was more contagious, people could likely still be vaccinated against it.
The FTSE All World Index had its worst day in three weeks on Monday, losing 0.8 percent. The global benchmark was unchanged on Tuesday.
Japan's Topix fell 1.6 percent on Tuesday, while the Australian S & P / ASX 200 lost 1.1 percent and the South Korean Kospi lost 1.6 percent. In China, the CSI 300 index of stocks listed in Shanghai and Shenzhen fell 1.6 percent.
The weakness in Asia came after investors in the region feared the more transferable Covid-19 strain could result in further lockdowns and restrict global travel.
Hong Kong's Hang Seng Index initially rose Tuesday morning but soon followed other Asian markets, falling 0.7 percent a day after the city banned incoming flights from the UK in response to the new strain.
Trading in the oil markets was negative again a day after the biggest drop in Brent crude in over a month. The international benchmark lost 1.8 percent in Asia on Tuesday to $ 50.04 per barrel.
The British pound weakened after a volatile session on Monday weighed down by the government's tough new lockdown measures over Christmas and stalled talks on a Brexit trade deal with the EU. The pound sterling fell 0.2 percent to $ 1.34 while the dollar index rose 0.1 percent.