LONDON – European shares limped lower and the region's bond markets rallied on Tuesday as some disappointing earnings, this week's looming US interest rate hike and an escalating gas crisis kept the mood cautious.

Asia had been buoyed overnight by the mainland's plans to support the real estate sector and by tech giant Alibaba applying for a primary listing in Hong Kong, but Europe couldn't keep it going.

The pan-European STOXX 600 index stalled as higher commodity stocks and a profit upgrade from consumer giant Unilever were offset by a 6 percent dive in UBS shares and broader recession fears.

"The key question we have as these earnings come out is how much pricing power do these (consumer facing) firms have," said Diamond Hill international equities portfolio manager Krishna Mohanraj, referring to the pressures of higher inflation.

Shares in US retailer Walmart had slumped 10 percent after the bell after it slashed its forecasts on Monday due to those exact issues. 

But Unilever, which makes everything from laundry detergent to ice cream, raised its full-year profit forecasts in Europe owing to what its CEO Alan Jope said had been "strong pricing to mitigate input cost inflation".

European Union countries were also preparing to approve weakened emergency proposals to curb their gas usage. Russia's Gazprom had warned on Monday that it would reduce flows further this week due to another maintenance issue.

Dutch and British "day ahead" prices jumped 8 percent and 16.5 percent respectively on Tuesday and a fall in euro zone bond yields in the fixed income markets came with analysts now increasingly pricing in a recession in the bloc.

"The potentially forced 15 percent reduction that all member states would have to adhere to was very unpopular amongst several members," Deutsche Bank's Jim Reid said. "Expect lots of carve-outs and compromises to appear if a plan that can progress is agreed upon".

Investors are also awaiting a likely 75 basis point Federal Reserve interest rate increase on Wednesday – with markets pricing about a 10 percent risk of a larger hike, as well as waiting to see whether economic warning signs prompt a shift in rhetoric.

The International Monetary Fund is set to publish its closely watched world forecasts later which are expected to point to even slower growth and higher inflation.

"We are leaning to the view that 75 bps is most likely but won't be the end unless they see some demand destruction and some tempering of inflation," said John Milroy, an investment adviser at Ord Minnett.

Tech problems

Global tech giants Microsoft and Google are both reporting after the bell on Wall Street later, followed by Facebook owner Meta tomorrow and Apple and Amazon on Thursday.

It adds up to more than $7.5 trillion of market cap, Deutsche Bank's Reid pointed out. "Although with these 5 stocks being down between around -13 percent (Apple) YTD to around -50 percent (Meta), with the other three down around -20 to -25 percent, this figure would have been closer to $10 trillion at the start of the year."

GM, NXP Semiconductors, Raytheon Technologies, Coca-Cola and McDonald's will also report later.

In Asia, MSCI's broadest regional index outside Japan had bounced 0.5 percent.

In currencies, the dollar was flat not too far below recent milestone highs as uncertainty continued to swirl around the interest rate and economic outlook.

The euro hovered at $1.0215 but was hemmed in by uncertainty over Europe's energy security, which is not helped by a looming cut in the westbound flow of Russian gas.

The yen steadied at 136.54 per dollar. The US dollar index, which touched a 20-year high this month, was down slightly at 106.380.

Oil prices rose further on expectations Russia's reduction in natural gas supply to Europe could encourage a switch to crude, with Brent futures last up 1.3 percent at $106.45 a barrel and US crude up 1.25 percent at $97.92 a barrel. 

Benchmark 10-year Treasury yields fell to 2.875 percent and Germany's benchmark 10-year bond yield fell to a two-month low of just below 1 percent as growth worries gave support to bonds .