By Helen Reid and Julien Ponthus
LONDON (Reuters) - European shares traded cautiously on Thursday, ending the session just slightly up as uncertainty over U.S.-China trade talks continued and weak earnings reports hit auto and retailer stocks.
The pan-European STOXX 600 (.STOXX) spent most of the day in negative territory but crossed the finish line up 0.2 percent as Wall Street erased early losses as the U.S. president hailed "tremendous success with China" but failed to fully reassure markets.
"U.S. markets are kicking off the day in positive fashion, with Donald Trump helping drive optimism around the US-China trade talks that took place earlier in the week", wrote Joshua Mahony, senior market analyst at IG, who advised his clients to take the presidential claims "with a pinch of salt".
The last minute gains kept alive a rally that had taken European stocks back to mid-December highs.
Corporate results, which were poor across the board, offered scant comfort.
Autos (.SXAP) were the second worst-performing sector, down 0.3 percent behind tech, which fell 0.5 percent.
German lighting company Osram (OSRn.DE) fell 6 percent after its CEO warned the final quarter of 2018 was weaker than expected because auto demand had slowed.
Auto weakness affected car parts makers Faurecia (EPED.PA) and Valeo (VLOF.PA), which lost 5.5 and 2.5 percent.
Tyre maker Continental (CONG.DE) ended the day down 2.4 percent.
Continental and Faurecia were doubly hit when UBS downgraded both stocks, citing a slowdown in car sector growth.
In the UK, updates from retailers dominated. Most confirmed they had had a bad Christmas.
Cycling and car parts retailer Halfords sank 22 percent to the bottom of the FTSE 250 after a profit warning.
Kering (PRTP.PA), which owns Gucci, was cut to "neutral" from "buy" at UBS, driving the stock down 3.5 percent. Luxury stocks have suffered from mounting signs of slower growth in China.
A difficult few months for equities have driven stock valuations down to what some investors consider attractive, despite the risks.
"After a weeks-long roller coaster for global equities, valuations have de-rated in line with past bear markets, and sentiment has taken a hit," wrote Goldman Sachs analysts.
"With equities already pricing a very negative outlook, we think this points to a risk rally -- especially if global growth holds up as we expect."
GRAPHIC: Jan. 10 valuations fall - https://tmsnrt.rs/2SKRh4T
(Reporting by Helen Reid, Editing by Josephine Mason and Robin Pomeroy)