LONDON (Reuters) – Stock markets rallied on Wednesday as U.S. President Donald Trump sounded upbeat about a trade deal with China, while sterling rose off 20 month lows as Prime Minister Theresa May vowed to fight a challenge to her leadership.

In an interview with Reuters, Trump said talks were taking place with Beijing by phone and he would not raise tariffs on Chinese imports until he was sure about a deal.

Trump also said he would intervene in the Justice Department’s case against a top executive at China’s Huawei Technologies [HWT.UL] if it would serve national security interests or help close a trade deal.

A Canadian court on Tuesday granted bail to the executive in a move that could help placate Chinese officials angered by her arrest.

The news was enough to prompt a bounce after days of struggle and MSCI’s broadest index of world stocks advanced nearly 0.5 percent.

Japan’s Nikkei had led the way in Asia with a jump of 2 percent, while Shanghai blue chips trailed with just 0.2 percent.

London, Frankfurt and Paris then gained between 0.4 and 0.8 percent to push Europe higher and E-Mini futures for the S&P 500 added 0.5 percent.

“We are seeing risk sentiment stabilizing a bit,” said Societe Generale strategist Alvin Tan.

“Firstly we had news that China was considering reducing tariffs on us car, then the Huawei CFO was released on bail and then Trump said could he intervene in the case if it helped secure a trade deal.”

Having been repeatedly disappointed before, analysts were still being careful to not get too optimistic about prospects of a trade agreement.

ING said the Huawei case made it increasingly obvious that the China-US trade war is about the exchange of technology, and there were also reports the United States would release evidence this week detailing Chinese hacking and economic espionage.

“Even if this (auto) step is taken it just removes what was a retaliatory measure to begin with,” noted ANZ economist David Plank. “Whatever the case, market price action is somewhat of a chop-fest, right now, as it swings around on each new headline.”

Markets had also been jolted when Trump threatened to shut down the government over funding for a wall he has promised to build on the southern border with Mexico.

A VERY BRITISH COUP

The pound had fallen to 20-month lows overnight after lawmakers in May’s Conservative party gathered enough support to trigger a no-confidence vote in her leadership.

But it stabilized as some investors bet that May would win Wednesday’s vote and in the process isolate opponents in her party who want a clean, sudden break from the EU.

Neverthless, uncertainty over the secret ballot capped gains, keeping the pound only just above $1.25, having shed 1.9 percent in the previous two sessions to a trough of $1.2483.

The euro softened slightly 90.56 pence, but was flat on the dollar at $1.1324. The dollar was still being viewed as the best of a bad bunch and stayed at 97.411 on a basket of currencies.

“The market is concerned that May could be replaced by a Brexit-supporter, increasing the chance of a no-deal scenario,” said Rodrigo Catril, a senior FX strategist at NAB.

Investors were also looking ahead to the U.S consumer price report later on Wednesday where an expected slowdown in headline inflation would only reinforce speculation of fewer rate hikes from the Federal Reserve.

While market still expect the Fed will tighten at its policy meeting next week, Trump said the central bank would be “foolish” to do so.

Wagers on a more restrained Fed helped gold stay near a five-month peak around $1,244.17 an ounce.

Oil bounced after industry data showed a surprisingly large draw on stockpiles and amid talk a recent OPEC-led supply cut could support prices in 2019. [O/R]

Brent futures added another 65 cents to $60.85, while U.S. crude rose 60 cents to $52.25 a barrel.

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