LONDON - Europe's markets were struck by a bout of weakness on Tuesday, as traders cashed in on recent record highs and waited for a long-awaited Sino-US trade deal and the first flurries of the Wall Street earnings season.

It had been smooth sailing in Asia. MSCI's world stocks index set a new record high.

Dealers struggled to put their finger on the exact cause but London, Frankfurt and Paris all took an early dip to leave the regional STOXX 600 as much as 0.5% lower and bonds and other safe-haven assets suddenly back in demand.

A number of heavyweight emerging market currencies were on the ropes too. The highly-sensitive South African rand hit a three-week low and Turkey's lira took its biggest tumble since mid-December.

In contrast to Europe's swoon, Japan's Nikkei had added 0.7% overnight to hit its highest in a month. Australian shares rose by the same margin to close at a record.

Hong Kong's Hang Seng and Shanghai blue chips also hit multi-month peaks before running out of steam.

NEW SEASON

In tandem with the swings, gold began to claw off a two-week low, although it was still around 0.3% weaker for the day as a whole at US$1543 per ounce.

Ten-year Treasury note yields dropped a couple of ticks 1.8354% compared with the 1.85% they had been at in Asia.

In currency markets, the yen also stabilised after weakening past the 110 yen-per-dollar mark, and the Swiss franc was marginally higher against a lifeless euro.

Besides the trade deal, investors are also looking to US inflation data due at 1330 GMT - with consensus expectations for it to hold steady at 0.2% in December - and the beginning of the fourth-quarter US company results season.

Big banks JPMorgan Chase & Co, Citigroup Inc and Wells Fargo & Co are due to report earnings before market open on Tuesday.