By Amy Caren Daniel and Medha Singh
(Reuters) - European stock markets recovered from early falls on Tuesday after European Central Bank chief Mario Draghi promised more monetary stimulus if the economy does not improve, offsetting another warning on slowing sales from the chip sector.
Speaking at the ECB's annual conference in Portugal, Draghi pointed the way to cuts in interest rates or new asset purchases if inflation does not return to target, weakening the euro, lowering European bond yields and pulling stock markets higher.
The pan-European STOXX 600 index was 0.1% higher by 0817 GMT, having fallen around a third of a percentage point at opening. The interest rate sensitive banking sector tumbled 0.6%.
The newsflow from European corporates continues to point to a euro zone economy struggling to get back off the ground after a decade of monetary efforts to reboot growth.
German chipmaker Siltronic tumbled 10.3% after it warned U.S. restrictions on exports to China would hurt business, saying Q2 sales would be "significantly below" the first quarter and were likely to decline further.
The profit warning came hot on the heels of U.S. chipmaker Broadcom's shock statement last Thursday that trade issues would knock $2 billion off 2019 sales and Frankfurt's trade sensitive DAX remained deep in negative territory, down 0.7%.
"The series of warnings in the chip business is further proof that the trade war is a key risk in the background," said Simona Gambarini, a markets economist at Capital Economics.
Another German chipmaker Infineon Technologies and STMicroelectronics, dropped 4.8% and 2.9% respectively, pulling the technology sector 1.1% lower.
Infineon's move came after it launched a 1.5 billion euro capital increase.
Concern over the protracted trade war between the United States and China drove European stocks 6% lower in May, their worst performance in more than two years, and spurred bets that central banks worldwide would turn more accommodative.
The rising hopes of moves by both the ECB and the U.S. Federal Reserve has helped the STOXX 600 gain 2% so far this month.
The U.S. central bank is expected to leave borrowing costs unchanged at a two-day policy meeting starting Tuesday, but its many traders expect its statement to open the way to rate cut next month.
In M&A news, Tieto rose 4.7% after the Finnish technology firm agreed to pay 13.2 billion Norwegian crowns ($1.51 billion) for Norwegian competitor Evry. Evry's shares surged 16.9%.