December 17, 2019 / 9:37 AM / a month ago

GLOBAL MARKETS-European stocks retreat, sterling skids

* European stocks drop off record highs

* Pound skids 1%as hard Brexit fears re-emerge

* Asia, emerging market shares at highest since June 2018

* World FX rates in 2019 tmsnrt.rs/2egbfVh

* Asian stock markets: tmsnrt.rs/2zpUAr4

By Marc Jones

LONDON, Dec 17 (Reuters) - European stocks slid from record highs and sterling dropped amid reports that Britain’s prime minister was ready to play rough in Brexit talks.

U.S.-China trade optimism and reassuring economic data from China had driven Asia and the main emerging market stocks index to 18-month highs overnight, but the greens immediately turned red when London, Frankfurt and Paris opened.

The FTSE 100, which had seen its best day in nearly a year on Monday, dropped 0.2% and the UK’s domestically focused mid-cap index plunged 1.6%, after reports UK PM Boris Johnson would use his control of parliament to ban any extension of the Brexit transition beyond 2020.

The pound fell 1% to back below $1.32 and nearly 2% under Thursday and Friday’s post-election highs of over $1.35.

The broader European STOXX 600 dropped 0.6%, hurt by a profit warning from consumer goods giant Unilever that sent its shares down nearly 6%.

“So much for pragmatism,” J.P. Morgan’s Malcolm Barr said, referring to reports of Johnson’s hard-line Brexit stance. “We have put the risk of a no-deal end to the transition at 25%, a number we regard as uncomfortably high.”

Britain’s political wrangling couldn’t keep Asian stocks from joining a global rally, however, as more U.S. officials confirmed phase one of a trade deal with China was done, although the details remain unpublished.

The preliminary deal between Washington and Beijing reached last week will double U.S. exports to China, White House adviser Larry Kudlow told Fox News on Monday. The United States will also reduce some tariffs on Chinese goods under the agreement.

Shanghai, Hong Kong and Seoul all gained more than 1% and MSCI’s all-country index set a record high, putting its gains for 2019 at almost 23%, its best year in a decade and the fourth-best year ever.

The return of Brexit angst meant safety trades were back in Europe. Most 10-year euro zone bond yields were around two basis points lower,, . Germany’s 10-year yield was at -0.30%.

In commodity markets, oil was near three-month highs in anticipation of growing demand from the world’s biggest economies. Brent crude held steady at $65.32 per barrel, after climbing on Monday. Gold rose to $1,477 per ounce.

The Australian dollar was under pressure after minutes of the central bank’s December policy meeting showed it might cut interest rates again in February if needed.

Wall Street futures pointed to a subdued start in New York later after a record-high finish on Monday.

“People are looking to close the year on a good note,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. “I think that these are far more opportunistic than they are conviction trades, so they tend to be a little bit more prone to taking profits.” (Additional reporting by Tom Westbrook, editing by Larry King)

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