A flare-up in diplomatic tensions with Russia abruptly cut short an attempted recovery in European stock markets on Monday, as Wall Street powered ahead.

The United States and its European allies expelled dozens of Russian diplomats in a coordinated action against Moscow which they accuse of poisoning an ex-spy in the English city of Salisbury.

Having held on to modest gains since the opening bell, key markets London, Paris and Frankfurt all slipped into the red in reaction.

Wall Street came off its early highs as Europe faltered, but still boasted an 1.5-percent gain in mid-morning in New York.

More optimistic on trade

Trade war fears meanwhile continued to hang over market sentiment like a dark cloud, but many investors became more optimistic amid signs that global trade players are making efforts to avoid an all-out trade conflict, dealers said.

The Wall Street Journal reported at the weekend that China and the United States had begun behind-the-scenes negotiations to improve American access to the Chinese domestic market.

On Friday, President Donald Trump abandoned a threat to shut down the US government, signing off on a budget despite being "unhappy" with many of its provisions.

The US move to impose $60 billion in levies on China -- claiming the country is breaching intellectual property rights -- sparked a rout on equity markets across the world, while Beijing warned it was "not afraid of a trade war".

US Treasury Secretary Steve Mnuchin said at the weekend that Trump was not ready to back down but added that he had "very productive conversations" with Chinese officials on the issue.

Trump's announcement came weeks after he unveiled tariffs on the import of steel and aluminium products as he presses on with his "America First" protectionist program.

"How China escalates will determine the pace of play, but Chinese retaliation so far has been more genial than initially thought, and they have made efforts for a diplomatic solution," said Stephen Innes, head of Asia-Pacific trading at OANDA.

Asian stock markets kicked off the day with another drop, but bargain-buying saw some return to positive territory and others pare the losses -- as it emerged that South Korea and the United States had reached an understanding on revising their free-trade agreement and on steel tariffs.

"So far, the initial measures from Trump and China are relatively muted," said James Cheo, senior investment strategist at Bank of Singapore.

"The room for miscalculation seems to be high, both in terms of provoking Chinese retaliation or taking measures that end up hurting the US economy. The hope is that there is rationality from both parties."

Key figures around 1455 GMT

London - FTSE 100: DOWN 0.3 percent at 6,899.09 points

Frankfurt - DAX 30: DOWN 0.8 percent at 11,797.46

Paris - CAC 40: DOWN 0.5 percent at 5,070.57

EURO STOXX 50: DOWN 0.6 percent at 3,279.17

New York - Dow: UP 1.5 percent at 23,894.63

Tokyo - Nikkei 225: UP 0.7 percent at 20,766.10 (close)

Hong Kong - Hang Seng: UP 0.8 percent at 30,548.77 (close)

Shanghai - Composite: DOWN 0.6 percent at 3,133.72 (close)

Dollar/yen: UP at 105.06 yen from 104.78 yen at 2100 GMT Friday

Euro/dollar: UP at $1.2447 from $1.2357

Pound/dollar: UP at $1.4227 from $1.4136

Oil - Brent North Sea: DOWN 33 cents at $69.48 per barrel

Oil - West Texas Intermediate: DOWN 39 cents at $65.49