European shares rallied on Tuesday after the United States and Mexico reached a trade agreement, with autos enjoying another day of gains on an otherwise quiet day for company news.

The pan-European STOXX 600 index was up 0.1 per cent by 0850 GMT, hitting a two-week high, while Germany's exporter-heavy DAX gained 0.1 per cent. Britain's FTSE 100 rose 0.6 per cent following Monday's holiday, helped by a subdued sterling.

European autos posted some of the biggest gains, up 1.3 per cent after the United States and Mexico had agreed on Monday to overhaul the North American Free Trade Agreement (NAFTA). That puts pressure on Canada to agree to new terms on auto trade and dispute settlement.

“Trade is the number one factor driving markets right now,” Jasper Reimers, market analyst at Vertex Capital Group, said.

“We've seen some developments between the United States and Mexico - hopefully they're going to start spilling over now,” Reimers added.

Mining shares were also big risers, up 2 per cent as copper prices rallied on the back of a weaker dollar, which makes greenback-denominated metals cheaper for the holders of foreign currency. Among individual stocks, shares in Danish brewer Royal Unibrew topped the STOXX with a 5.2 per cent gain after the company raised its outlook for the third time this year.

With the European earnings season all but over, actual earnings growth for the MSCI EMU index has come in at 5.8 per cent for the second quarter, according to Thomson Reuters I/B/E/S data.

While earnings growth has been fair for Europe, it has been nowhere near as strong as the 24.8 per cent figure for the S&P 500. Shares in British business supplies firm Bunzl climbed 1.7 per cent after reporting a rise in first-half profit, thanks to recent acquisitions and higher demand from North America.

Shares in Sydbank fell more than 9 per cent, however, after the Danish bank reported disappointing second-quarter earnings, missing profit forecasts.

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