European Stocks Bounce Back While Wall Street Treads Water

European stocks rebounded Tuesday but Wall Street treaded water as traders tracked developments on the coronavirus pandemic and the latest US stimulus plan.

Investors welcomed a new forecast from the IMF, which lifted its 2021 while warning of "extraordinary uncertainty" due to Covid-19.

Bourses in Paris and Frankfurt made solid gains after an ugly session on Monday.

"Stock markets were already driving higher this morning and the bullish move was given extra help by the IMF, which lifted its expectations for the world growth," said market analyst David Madden at CMC Markets UK.

The International Monetary Fund said the global economy is expected to see a strong rebound this year, but the coronavirus crisis is causing severe damage, slashing tens of trillions of dollars off GDP.

Optimism that new vaccines will bring the pandemic under control and allow economic activity to resume, coupled with stimulus in major economies, has alllowed the IMF to boost its global growth forecast this year by two percentage points to 5.5 percent.

Investors have been on a stock-buying spree since November, when Joe Biden won the US presidency and vaccinations began to be authorized, with additional support coming from central banks' loose monetary policy and massive government spending.

But while the general feeling is of optimism about the long-term outlook, confidence is being tested by the pandemic, its rising death toll, new lockdowns and problems in rolling out inoculations.

The biggest driver of the market rally in recent weeks has been hope for Biden's $1.9 trillion economic rescue plan.

But there is a growing concern that it could be whittled down in congressional negotiations, with Republicans and even some Democrats concerned about its size in the wake of a $900 billion deal passed at the end of last month.

There is also growing concern that it may not pass before the US Senate turns to the impeachment trial of Donald Trump in two weeks.

Fawad Razaqzada at ThinkMarkets said that "although there are questions surrounding the timing and scale of new fiscal aid, investors seem convinced that the aid is coming, nonetheless."

US stocks wobbled, although the S&P 500 touched another record high before pulling back.

Razaqzada said that "investors are also positive that the fourth quarter technology earnings will beat Wall Street expectations."

Shares of Micorsoft jumped 3.6 percent in after-hours trading after reporting a 33 percent increase in quarterly earnings to $15.5 billion.

Apple, Tesla and Facebook will be among those releasing figures on Wednesday.

Asian traders were in a selling mood Tuesday, with Hong Kong and Shanghai suffering big losses after the People's Bank of China tightened liquidity in mainland financial markets.

Seoul shed more than two percent after data showed the South Korean economy suffered its worst year since 1998, when the Asian financial crisis rocked the region.