Europe makes gains as French government survives confidence vote

(Reuters) - World stocks shuffled back towards all-time highs on Thursday as AI optimism trumped simmering U.S.-China trade tensions again and France's fragile government survived a crucial confidence vote in Europe.

The appeal of safe-haven gold showed little sign of abating, however, while the dollar dipped for a third day running and oil prices climbed after U.S. President Donald Trump said India had pledged to stop buying Russian oil.

French Prime Minister Sebastien Lecornu's success in a confidence vote was enough to cap a four-day bond market rally that has driven euro zone borrowing costs to their lowest level in months.

Lecornu's survival came at a cost though. He had secured crucial backing from the Socialist Party after pledging to suspend President Emmanuel Macron’s contested increase in the retirement age to 64 from 62 by 2030.

State Street's head of global macro strategy, Michael Metcalfe, said the situation in France should now stabilise, at least for a while.

"At least they have managed to come to some compromise which removes the risk of a snap election," Metcalfe said, adding the market was also now looking at whether the dollar begins to fall back again.

"Have we seen a stabilisation of dollar sentiment, or has it (a modest bounce this month) just been a reflection of higher political uncertainty outside the U.S.?" he said, also pointing to recent drama in Japan.

Current and future retirement ages in selected European countries

AI MEGATREND STRENGTHENING

Japan's Nikkei (.N225) jumped 1.3% and the yen edged down in Tokyo trading as prospects appeared to brighten for Sanae Takaichi to become Japan's first woman premier, stoking bets on a revival in big spending and loose monetary policy.

Chip- and artificial intelligence-related shares also provided a boost, as Taiwanese chipmaker TSMC (2330.TW), whose customers include Nvidia (NVDA.O) and Apple (AAPL.O), reported record earnings as Asian trading had been winding down.

Its CEO said conviction in the "AI megatrend" was "strengthening", as it raised its 2025 revenue guidance to mid-30% growth in U.S. dollar terms from around 30%, and maintained its pledge to spend up to $42 billion this year.

"AI demand actually continues to be very strong - more strong than we thought three months ago," CEO C.C. Wei told an earnings call.

That filtered into U.S. stock index futures, which were pointing to steady gains for Wall Street when trading resumes.

South Korea's tech-dominated KOSPI (.KS11) had jumped 2.5% to its own record peak overnight too after the country's chief presidential policy adviser said he was "optimistic" about finalising a trade deal with the United States.Australian stocks (.ASJO) added nearly 1% and also reached a record high after poor jobs data improved the odds in favour of more central bank interest rate cuts. That also dragged down the Aussie dollar.

"Nobody forecast the unemployment drop," Societe Generale's Kit Juckes said, adding that the yen now looked "stuck" because there will be "a minority government that wants fiscal stimulus and doesn't want rate hikes."

GOLD SURGE CONTINUES

Record-high gold added to its more than 60% surge this year as it reached an unprecedented $4,241.77 per ounce .

The dollar meanwhile sagged for a third straight session, dropping 0.2% against a basket of major peers .

Investors were still eying Fed rate cuts and scrutinising China’s latest rare earth export controls, a move sharply criticised by senior U.S. officials on Wednesday, who warned that it could disrupt global supply chains.

"The question for financial markets is whether China's proposed export controls on rare earths are merely part of a bargaining ploy to achieve greater concessions from the U.S.," said Chris Turner, global head of markets at ING.

Amid the tit-for-tat, Trump still expects to meet Chinese President Xi Jinping in South Korea this month, U.S. Treasury Secretary Scott Bessent said.

Trump's trade manoeuvres also lifted oil off five-month lows, with Brent crude futures up 0.4% at $62.13 a barrel and U.S. West Texas Intermediate (WTI) futures adding 0.7% to trade at $58.69.

Trump had said on Wednesday that India would halt oil purchases from its top supplier Russia, and Washington would next try to get China to do the same as it intensifies efforts to pressure Moscow into a peace deal in Ukraine.

Additional reporting by Kevin Buckland in Tokyo; Editing by Joe Bavier