* European earnings are better-than-expected
* Markets eye escalating U.S.-China tensions
* Gold extends gains to new 9-year peak
* Investors prepare for U.S. jobs data due at 1230 GMT
* Graphic: World FX rates in 2020 tmsnrt.rs/2egbfVh
By Tommy Wilkes
LONDON, July 23 (Reuters) - Stock markets rose on Thursday as better-than-expected corporate earnings in Europe offset worries about rising cases of COVID-19 and a sharp escalation in tensions between the United States and China.
Shares have rallied to their strongest levels since February this week - in many countries erasing their entire slump in March when the coronavirus pandemic sent markets into freefall - as investors bet that massive stimulus has carried economies through the worst of it.
The pan-region Euro Stoxx 50 climbed 0.57% while the German DAX gained 0.64% and the FTSE 100 by 0.58%.
S&P mini-futures added 0.34%, pointing to a stronger open on Wall Street.
The MSCI world equity index, which tracks shares in 49 countries, rose 0.13%, close to Tuesday’s level, which was its highest since late February. It has surged around 45% since the lows of late March.
The gains this week are despite Washington’s order to Beijing to close its consulate in Houston, Texas amid accusations against China of spying, which initially pulled shares lower in Asia before stocks rebounded.
China called the order an “unprecedented escalation” by Washington and warned it would be forced to respond.
U.S. President Donald Trump said that other consulate closures were “always possible”.
“You almost have a tug of war in markets between positives and negatives and it’s finally balanced. It looks like markets are pricing a V-shaped recovery so you can expect small negatives to have an outsize impact on markets,” said Justin Onuekwusi, portfolio manager at Legal & General Investment Management.
“But the pullback is likely to be shortlived as there are people waiting for a dip.”
Positive corporate earnings surprises in Europe helped the mood, including from Unilever , French-Italian chipmaker STMicroelectronics and automaker Daimler .
Investors will be keeping a close watch on U.S. weekly jobless claims figures due at 1230 GMT for the latest indications of how the novel coronavirus pandemic has affected the American economy. The U.S. recorded more than 1,100 new coronavirus deaths for a second straight day on Wednesday.
Despite the virus being far from under control, analysts say unprecedented stimulus measures to boost battered economies continue to provide structural support for riskier assets.
“The forces of liquidity are just unparalleled ... we’re seeing what happened post the GFC (global financial crisis), but we’re seeing it on steroids,” said Kay Van-Petersen, global macro strategist at Saxo Capital Markets in Singapore.
“It’s rare that you see both monetary and fiscal policy turned on, and then when they are they only turn on for a little bit.”
In currency markets the euro was up 0.1% to $1.1583, close to the 21-month high of $1.1601 it touched on Wednesday as agreement between European Union members on a large economic recovery fund continued to provide lift.
Traders pleased with the deal have also pushed Italian borrowing costs lower, and yields on 10-year government debt dropped to a new 4-1/2 month low, moving closer to 1%.
The dollar was down marginally against a basket of currencies and unchanged versus the Japanese yen .
Gold prices rose 0.6% to $1,888 per ounce, a new nine-year peak, with prices up 24% on the year.
Investors have flocked to the safe-haven metal as they seek shelter from a potential reversal in pumped-up stock prices and a possible rise in inflation following so much monetary and fiscal stimulus.
Oil prices gave up earlier gains, with U.S. crude down slightly to $41.85 a barrel and global benchmark Brent crude nine cents lower at $44.20 per barrel.
Additional reporting by Sujata Rao in London and Andrew Galbraith in Shanghai Editing by Raissa Kasolowsky and Elaine Hardcastle