European equities bounced back from their biggest drop of the year in the previous session as investors shrugged off caution about the global economic outlook to focus on buying opportunities.

The Europe Stoxx 600, which fell more than 1.7 per cent on Thursday amid concerns about a potential slowdown in China and the intensifying spread of the Delta variant of Covid-19, gained 0.9 per cent on Friday. The UK’s FTSE 100 gained 0.7 per cent.

The Stoxx travel sub-index, which had dropped more than 4 per cent in the previous three sessions, gained 1.2 per cent after the UK on Thursday eased travel restrictions for summer holidaymakers. European bank shares rose 2.2 per cent, following a fall of almost 7 per cent from Tuesday to Thursday.

Futures markets signalled the S&P 500 would gain 0.5 per cent in early New York dealings after Wall Street’s main share index closed 0.9 per cent lower on Thursday. Contracts on the technology-focused Nasdaq Composite traded up 0.1 per cent.

The Stoxx and the S&P 500 are still hovering near record highs ahead of a second-quarter earnings season, where companies are expected to show they have benefited from industries reopening after last year’s shutdowns and from central banks’ easy monetary policies.

“Equity markets are in a state of indecisiveness but with an upward drift,” said Sunil Krishnan, head of multi-asset funds at Aviva Investors.

“There are times when the upward drift has looked almost too smooth, so you do get corrections. But a lot of investors will have been waiting on the sidelines to increase their positions.”

The yield on the benchmark 10-year US Treasury bond, which moves inversely to its price, rose 0.05 percentage points to 1.337 per cent. This yield dropped to a four-month low on Thursday following weaker than expected US service sector growth, with analysts speculating that trend-following algorithmic funds had increased the magnitude of the move.

The rapid spread of the Delta variant globally was also widely cited for the Thursday’s move out of equities and into the safety of US Treasuries.

On Friday, China’s central bank announced a half a percentage point cut in the reserves banks need to hold, making it easier for them to make profits on loans but also stirring concerns about the health of the nation’s lenders following a debt-fuelled property boom.

“Let me be plain, this [reserve ratio requirement] cut is not a positive signal,” ING Greater China chief economist Iris Pang said.

“This gives me a sense of unease,” she added. “Are banks under stress?”

Julian Evans-Pritchard, of Capital Economics, said the cut was instead intended to “nudge banks to lower lending rates”.

Chinese data on Friday also showed that consumer price inflation remained low at 1.1 per cent in June.

Elsewhere in markets, the dollar index, which measures the greenback against major currencies, slipped 0.1 per cent but remained around its highest level since early April. The euro added 0.1 per cent against the dollar to $1.1856. Sterling gained 0.3 per cent to $1.3825.

Brent crude, the international oil marker, added 0.8 per cent to $74.77 a barrel.