A man looks at an electronic board showing the Nikkei stock index outside a brokerage in Tokyo, Japan, January 7, 2019. REUTERS/Kim Kyung-Hoon

By Amanda Cooper

LONDON (Reuters) -Global stocks were driven higher on Monday by optimism over a U.S.-China trade truce and surging investment in AI, while the dollar hit three-month highs as expectations for hefty U.S. rate cuts showed signs of waning.

Investors remain focused on developments from last week, including central bank meetings and the U.S.-China agreement on a year-long trade truce, although doubts remain if it will last for the full duration.

In Europe, the broad STOXX 600 share index rallied 0.4% in another heavy week for earnings, while the dollar gained and U.S. stock futures rose 0.3 to 0.5%.

Investors cannot rely on their usual economic touchstone in the first week of the month - the monthly U.S. jobs report - and will have to look instead at private-sector employment and the labour components of surveys of business activity due this week.

"If it weren’t for the shutdown, we’d be looking forward to the U.S. jobs report for October on Friday. But given we aren’t getting the government data releases, there’s likely to be outsize attention on the ADP’s report of private payrolls on Wednesday, especially in light of Chair Powell’s hawkish press conference last week," said Deutsche Bank strategist Jim Reid.

TIME FOR CAUTION?

The U.S. Federal Reserve last week cut interest rates as expected. But Chair Jerome Powell said another cut in December was "not a foregone conclusion", contrary to investor belief that it was essentially a done deal.

The mood is still buoyant, some analysts believe that a number of other positives, such as the trade truce between Washington and Beijing, may already be in the rear-view mirror.

In Asia, data showed big manufacturing hubs struggled to fire up in October as weak U.S. demand and tariffs under President Donald Trump hit factory orders.

"We advise investors to lock in some gains on the rises and accumulate on the corrections, and rotate into more defensive positioning toward year-end," said BofA strategists.

HAWKISH FEDSPEAK

A clutch of Fed officials on Friday aired their discomfort with the central bank's decision to cut interest rates, even as influential Fed Governor Christopher Waller made the case for more policy easing to shore up a weakening labour market.

Traders are now pricing a 68% chance of a rate cut in December, down from a near certainty last week before the Fed meeting, where it lowered rates by 25 basis points.

The dollar has been clawing back this year's losses over the past few weeks and is now down around 7.9% against a basket of six other currencies, compared with a year-to-date loss of closer to 11% in September. The dollar index posted a gain of 2% in October, its largest monthly increase since July.

On Monday, the euro was down 0.1% at $1.1521, around three-month lows, while sterling was down 0.4% at $1.312, ahead of a knife-edge Bank of England rate decision later this week. The yen weakened, leaving the dollar up 0.1% at 154.15 yen, near its highest since mid-February.

EARNINGS IN FOCUS

After a mixed bag of earnings from megacap companies that showed investors were keen to see a return on the extensive capital spending on AI, focus will be on the tech sector.

Semiconductor firm Advanced Micro Devices, Qualcomm and data analytics company Palantir Technologies report this week, along with Uber and fast-food chain McDonald's.

In commodities, gold was back above $4,000, while Brent crude futures eased 0.15% to $64.67 a barrel, shrugging off news that OPEC+ had decided to refrain from raising output in the first quarter of 2026.

(Additional reporting by Ankur Banerjee in Singapore; Editing by Sonali Paul, Himani Sarkar, Emelia Sithole-Matarise and Alexander Smith)