A British official said the U.S. and UK were working to agree on lower tariffs on steel and autos, two sectors that have been hit by 25% U.S. levies. In return, Britain is likely to agree to lower its own tariffs on U.S. cars and cut a digital sales tax that affects U.S. tech groups.
The status of a 10% "baseline" tariff imposed by Trump on most countries including Britain remained unclear.
Awaiting the widely-expected quarter point UK rate cut later today, sterling appeared to shrug off the anticipated trade announcement. But the FTSE 250 index of domestically facing mid-cap stocks rose almost 1% on the news to its highest point since late February.
Meanwhile, the Federal Reserve chose not to change interest rates on Wednesday, a decision that was widely expected. The U.S. central bank flagged the high level of uncertainty ahead, arguing that it made it challenging to make any confident changes to policy or guidance.
Embattled Fed Chair Jerome Powell highlighted the risk that trade upheaval could lift both unemployment and inflation, creating tensions in the Fed's dual mandate on jobs and price stability.
"I don't think we can say which way this will shake out," Powell said.
But Wall Street stocks ended higher nonetheless, emboldened by hopes that the week ahead will see at least some easing of planned U.S. tariffs amid expected deals with Britain and others as well as weekend talks in Switzerland with China.
U.S. stock futures extended those gains overnight along with a broad advance in European and Asian bourses.
Although the first-quarter U.S. earnings season has been sideswiped by suspended outlooks and foggy guidance due to the looming tariffs, estimated annual profit growth for S&P 500 companies during the first three months is running at 14% - almost twice what it was on April 1 and above the 12% forecast for the first quarter made at the start of the year.
Elsewhere, US Treasury yields were steady to a touch higher after the Fed meeting, with $25 billion of 30-year bonds up for auction later on Thursday.
The dollar index was slightly firmer, with the euro flirting with its lowest level in almost a month and China's offshore yuan slipping after this week's latest monetary easing from the People's Bank of China.
Elsewhere, Nordic central banks in Sweden and Norway kept their interest rates on hold.
Regional markets were unnerved by the escalating conflict between India and Pakistan.
Trading was halted for an hour on Thursday at the Pakistan Stock Exchange after the benchmark index plunged as much as 6% following reports of drones being shot down in major cities including Karachi and Lahore. That came a day after Indian strikes on multiple targets in the country fanned fears of a larger military conflict between the nuclear-armed neighbours.
The Indian rupee, equities and bonds also weakened in late afternoon trading there.
