The Associated Press

LONDON (AP) -European stock markets rose Wednesday after generally positive corporate earnings from leading industrial companies, though a sharp drop in Chinese stocks and an expected retreat at the open in the U.S. capped the gains.

The FTSE 100 of leading British shares was up 33.10 points, or 0.7 percent, at 4,561.94 while Germany's DAX rose 70.62 points, or 1.4 percent, to 5,245.36. The CAC-40 in France was 45.97 points, or 1.4 percent, higher at 3,376.94.

The early gains have more or less erased the losses posted Tuesday, when modest profit-taking drove trading after a two-week run that sent many of the world's major indexes to their highest levels this year.

Whether the losses posted in the previous session in the U.S. and Europe, and followed up in Asia early Wednesday, represented only natural pause for breath in a market rally will be closely monitored in the coming days.

"We are now in an important transition period for these markets and the next few days will be pivotal to see if we can continue the recent strength," said Jimmy Yates, head of equities at CMC Markets.

So far Wednesday, prospects don't look so bad, especially after a string of encouraging results in Europe and Asia.

In Asia, carmakers were in the spotlight. Nissan Motor Co. reported a smaller-than-expected loss for its fiscal first-quarter and unveiled plans to build more cars in China, one of the few auto markets where sales are still growing. Meanwhile, Honda Motor Co. bucked expectations and remained in profit.

In Europe, France's PSA Peugeot-Citroen reported a big loss for the first half of the year but generated strong cash flow from cost-cutting measures and an inventory drawdown. As a result, hopes that it won't have to tap shareholders for more cash helped the company's stock jump 7.8 percent to Ǩ19.84 and to the top of the CAC-40 leaderboard. Rival Renault SA rallied in Peugeot's slipstream. It was up 5.5 percent to Ǩ28.46.

Meanwhile in Germany, Bayer AG topped the DAX index despite sagging second-quarter sales and a 7 percent fall in net profit. The company's share price rose 4.2 percent to Ǩ41.74 after the pharmaceutical and chemical company showed good growth at its health care unit, which makes Aspirin, Alka-Seltzer, Yasmin and the multiple sclerosis treatment Betaseron.

And Akzo Nobel NV, the world's largest maker of paint, saw its shares jump nearly 8 percent after it said margins had been preserved by cost-cutting and lower raw materials costs despite a 13 percent fall in second-quarter profit.

It wasn't all good news on the earnings front though, with steelmaker ArcelorMittal SA reporting a bigger than anticipated second-quarter loss and its share price slid 3.7 percent to Ǩ24.40 in Paris.

Earnings statements will also attract attention when Wall Street opens up for business later. Among those due to report are energy company ConocoPhillips Co, Royal Caribbean Cruises Ltd and media conglomerate Time Warner Inc.

Analysts said that the bar has been raised by the recent strong U.S. earnings and that as a result, upcoming results will have to outperform by a large amount to garner the same positive response in the markets.

Signs at the moment are that U.S. stocks will continue to drop at the bell. Dow futures were down 31 points, or 0.3 percent, at 9,019 while the broader Standard&Poor's 500 futures fell 4.2 points, 0.4 percent, to 971.70.

Earlier in Asia, most markets dropped in the wake of the modest retreat in Europe and on Wall Street.

Japan's Nikkei 225 stock average closed up 25.98 points, or 0.3 percent, at 10,113.24 following a seesaw session, but Hong Kong's Hang Seng retreated 489.04, or 2.4 percent, to 20,135.50.

The main Shanghai index dived nearly 8 percent at one stage before clawing back some losses, ending down 171.94 points, or 5 percent, at 3,266.43. Even so, the drop was the biggest since last November but followed seven straight gains and arose after reports suggested that China's two state-owend banks have been asked to limit their lending another sign that the Chinese authorities are beginning to worry that the country may be growing too fast.

The losses in China came despite a stellar opening by China State Construction Engineering Group Corp., which built the "Water Cube" swimming center for the Beijing Olympics. On its first day of trading, the company's stock ended 56 percent higher. The company's initial public offering was the biggest this year, raising a whopping $7.3 billion.

Elsewhere, South Korea's Kospi inched down 0.1 percent. Markets in Taiwan, Australia and Singapore also lost ground.

Oil prices fell again, with benchmark crude for September delivery down $1.55 at $65.68 a barrel.

Meanwhile, the dollar rose 0.3 percent to 94.72 yen while the euro declined 0.3 percent to $1.4138.

AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.