LIVE MARKETS-Which way out of the Brexit impasse?

* European stocks rise

* Sainsbury (Amsterdam: SJ6.AS - news) 's falls 16 pct as Asda deal doubts mount

* Swedbank (LSE: 0H6T.L - news) hit by money laundering allegations

* Salmon farmers slip on EU cartel inquiry

Feb 20 - Welcome to the home for real-time coverage of European equity markets brought to

you by Reuters stocks reporters and anchored today by Helen Reid. Reach her on Messenger to

share your thoughts on market moves: helen.reid.thomsonreuters.com@reuters.net

WHICH WAY OUT OF THE BREXIT IMPASSE? (1123 GMT)

The question of the Irish backstop remains the key obstacle between Prime Minister May and

approval of her deal, as she enters talks with European Commission chief Jean-Claude Juncker in

Brussels today.

As EU diplomats ramp up the pressure, saying the UK has until mid-March to secure a deal,

foreign secretary Jeremy Hunt said the British government can secure parliamentary backing if a

"simple and important" change to the backstop can be made.

Sterling's retreat today reflects increased scepticism about how likely such a breakthrough

is, after the currency jumped above $1.3 yesterday.

Besides changes to the backstop, assurances that May will depart soon could help foster

cooperation on her deal, according to JP Morgan.

"The prospect of the Conservatives selecting a new leader for phase two of the Brexit

negotiations might be enough to convince some Brexiteers to tolerate the deal," writes JP Morgan

economist Malcolm Barr, saying May could make a commitment to resign shortly after Brexit

occurs.

According to RaboBank, the easiest way to get the current deal through Parliament is for

Conservatives to cooperate with Labour and endorse their preference for a permanent Customs

Union with the EU - but May unsurprisingly doesn't want to go down this path, which is why she

is likely to take Brexit "down to the wire".

"This is a risky approach that maintains the odds of a no-deal (hard) Brexit almost as high

as those of an orderly one," Rabobank analysts write.

"We continue to think that May will be pushed to extending Article 50 next week to avoid

losing control of the process and avoid a string of ministerial resignations," JPM's Barr adds.

The latest news of three pro-EU lawmakers defecting from the Conservative party over the

government's "disastrous" handling of Brexit only accentuates the pressure on May.

(Helen Reid)

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0.4 PCT TRADE TALK OPTIMISM (0941 GMT)

Stock indexes have lately become gauges of the Sino (Dusseldorf: 1205802.DU - news) /U.S. talks more than anything else, let

alone blue-chips' future earnings, it sometimes feels.

So what are the STOXX 600 and the EURO STOXX telling us this morning about Xi and Trump's

ability to strike a deal? Well 0.4 percent probably best translates "cautious optimism".

That's right now but no doubt there will be plenty of mood swings and price swings moving

forward.

"Global equity markets are likely to be mostly dictated by US - China trade developments for

the rest of the trading week," writes Lukman Otunuga, an analyst at FXTM.

Anyhow, at the moment the darlings of the trade play are up: Germany's DAX is rising 0.7

percent, autos 1.6 percent and miners 0.7 percent.

In London, Sainsbury's is the main mover of the day, sinking 13 percent after the UK

competition regulator raised big objections to its merger with Asda - saying it should either be

blocked or require the sale of a significant number of stores, or even one of the brands.

It could arguably be seen as good news for UK consumers but other supermarkets are also

losing ground with Morrisons down 4.5 percent. The retail index is also falling 2.1 percent.

Another big mover is Swedbank, falling over 7 percent as reports suggest links to the money

laundering scandal involving Denmark's Danske Bank (LSE: 0NVC.L - news) .

Here's an illustration of the gauge theme with a photo of a pressure gauge. Talking about

pressure, can you hear the Queen/David Bowie earworm creeping in?

(Julien Ponthus and Helen Reid)

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WHAT'S ON THE RADAR: SAINSBURY'S, GLENCORE (Frankfurt: 8GC.F - news) , AIR FRANCE (Paris: FR0000031122 - news) (0749 GMT)

Signs of progress in U.S.-China trade talks, and President Trump saying the March 1 deadline

is not “magical”, boosted Asian shares to 4 ½ month highs overnight and were set to drive

European shares up in early deals too.

Results from UK lender Lloyds, miner Glencore, German healthcare group Fresenius (Swiss: FRE-EUR.SW - news) , and French

airline Air France would dominate trading as the European earnings season continued.

Fresenius said it expects earnings to stagnate this year due to investments to improve its

German hospitals and scale up its home dialysis business. But its shares are seen up 1-2 percent

as news of faster earnings growth from 2020 and a 1 billion euro share buyback was well

received.

Sainsbury’s shares are expected to slide as much as 5-10 percent after Britain’s competition

regulator said the supermarket chain’s merger with Asda could be blocked. The share price fall

could spill over into Morrisons and Tesco (Swiss: TSCO.SW - news) – indicated down 2 to 3 percent - as investors reset

their expectations of M&A in the food retail space.

Strain in UK retailers is again front and centre with both household furnishings firm Laura

Ashley and professional cleaning retailer McBride (LSE: MCB.L - news) indicated down 15 percent after profit

warnings.

French flag carrier Air France will fall 2-3 percent, traders said, after reporting weaker

than expected unit revenue.

Glencore, meanwhile, is seen gaining 3 percent after announcing a new $2 billion share

buyback scheme.

(Helen Reid)

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TRADE TALK PROGRESS BOOSTS EUROPEAN FUTURES (0720 GMT)

Futures have opened up higher as traders bet on progress in U.S.-China trade talks, while

results from UK lender Lloyds Bank and miner Glencore have come in. Sainsbury's shares could be

hurt by Britain's competition regulator saying its merger with Asda could be blocked.

Glencore announces $2 bln buyback plan, 2018 earnings rise

Sainsbury's-Asda merger could be blocked-UK regulator

Lloyds Bank posts 24 percent profit rise, unveils $2.3 bln buyback

(Helen Reid)

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EARNINGS: FRESENIUS, SCOR, TELEFONICA (LSE: 826858.L - news) , AIR FRANCE (0654 GMT)

Besides the encouraging noises from Washington on trade negotiations, results are likely to

drive the day today with French reinsurer Scor, airline Air France, and Spanish telecoms firm

Telefonica among those reporting.

There's also a bit of M&A with Dubai-based port operator DP World (Stuttgart: 3535769.SG - news) buying the UK's P&O

Ferries for 332 million pounds ($421 million).

Here's a roundup of the headlines so far:

Fresenius expects earnings to stagnate in 2019 as investments weigh

Telefonica sales up 3.2 pct in Q4, FY OIBDA up 5.3 pct

French reinsurer Scor's 2018 profit soars despite natural disasters

Air France-KLM (LSE: 0LN7.L - news) battles fuel costs with deeper integration

DP World buys Britain-based P&O Ferries for $421 mln

German regulator intervenes to halt cryptocurrency offering - source

Investor Cat Rock says Just Eat (Frankfurt: A1100K - news) shareholders back merger proposal

(Helen Reid)

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GOOD SIGNS FROM U.S.-CHINA NEGOTIATIONS TO PUSH EUROPEAN STOCKS UP (0636 GMT)

Signs of progress in deputy-level talks, which began yesterday, helped push Asian shares up

overnight and spreadbetters see that optimism seeping over into European trading.

Trump said on Tuesday that trade talks with China were going well and suggested he was open

to pushing off the deadline to complete negotiations, saying March 1 was not a "magical" date.

Higher-level talks involving Mnuchin and led by USTR Robert Lighthizer are expected to begin

on Thursday.

Asian stocks advanced to 4-1/2-month highs on Wednesday as investors bet that Chinese and

U.S. trade negotiators would be able to secure a deal to de-escalate their year-long tariff war.

The FTSE 100 is expected to open 2 points higher at 7,181, the DAX is expected to open 4

points higher at 11,313, and the CAC 40 is expected to open 8 points higher at 5,168, according

to spreadbetters CMC Markets (LSE: CMCX.L - news) .

(Helen Reid)

*****

(Reporting by Helen Reid, Danilo Masoni, Julien Ponthus)