German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, October 2, 2025. REUTERS/staff

By Sruthi Shankar

(Reuters) -European shares made a modest recovery on Monday, after U.S. President Donald Trump dialled back his tough stance on trade with China, worries about which had sparked a sharp selloff across stocks on Friday.

The pan-European STOXX 600 index rose 0.4% in morning trade, following a 1.3% drop in the previous session, after Trump threatened 100% duties on Chinese imports in a reprisal against China curbing its critical mineral exports.

While Asian stocks plunged, European markets and Wall Street futures recovered, pointing to an improving mood as Trump sounded more conciliatory over the weekend.

"What we see this morning looks to me like dip buying, where people try to play the old TACO playbook of "Trump always chickens out"," said Joachim Klement, an investment strategist at Panmure Liberum.

"When it comes to tariffs, China is definitely the only country that plays hardball with the U.S. Even though markets are taking it in their stride this morning, we're going to enter a period of heightened uncertainty around tariffs once again."

European stocks are trading just below all-time highs reached last week, with a thriving artificial intelligence trade and optimism over potential U.S. rate cuts outweighing French political chaos and rising tariff risks.

France's CAC 40 climbed 0.5% after Sebastien Lecornu was reappointed as the prime minister on Friday, just four days after he had resigned from the role.

The government must formally present a budget in the coming days that faces a perilous path through a deeply divided parliament.

Among big movers, PSI Software surged 34% towards its highest since 2021 after private equity firm Warburg Pincus was set to buy the German software firm for more than 700 million euros ($813.26 million), confirming Reuters reports about the deal and the offer price.

Exosens climbed 6.4% after Greek night vision systems maker Theon International said it plans to buy a 9.8% stake in its French peer. Theon's shares dipped 1.3%.

Big Yellow Group jumped 21% after Blackstone Europe said it was in the early stages of considering a possible cash offer for the UK-listed self-storage company.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Mrigank Dhaniwala and Rashmi Aich)