By Tom Wilson, Stella Qiu and Alun John

LONDON/BEIJING (Reuters) – A rally for shares wilted on Thursday as analysts warned of further pain for stocks with no immediate end in sight to the war in Ukraine, even after planned diplomatic talks between Moscow and Kyiv had lent momentum to riskier bets.

European stocks fell 1.7%, with indexes in Germany and Britain losing 1.9% and 0.9% respectively, a reversal after futures gauges had suggested slim gains in early trade. Automakers suffered the most, falling 0.9%.

Foreign ministers from Russia and Ukraine will meet in Turkey on Thursday in the first high-level talks between the two countries since Moscow invaded its neighbour, with Ankara hoping they could mark a turning point in the conflict.

The prospect of talks had buoyed MSCI’s broadest index of Asia-Pacific shares outside Japan by 1.8%, with Tokyo adding 3.9%, its best day since June 2020.

Analysts said the gains in Asia, which came after European stocks had their best day in almost two years on Wednesday, were always susceptible to a sharp reversal.

“The prospect of peace, an imminent de-escalation, really is pie in the sky,” said Michael Hewson, chief markets analyst at CMC Markets.

“As with any sort of bear market you always get face-ripping rallies in them, because people are reluctant to be aggressively pessimistic.”

Still, the euro also held on to most of its gains from its steepest daily jump in almost six years ahead of a European Central Bank meeting likely to shed light on the bloc’s monetary and fiscal response to Russia’s invasion.

The single currency was last down 0.3% at $1.1046.

Other EU talks were due, with leaders set to hold initial discussions at a summit starting on Thursday evening about a joint investment plan to boost the bloc’s independence in defence and energy.

U.S. inflation figures are also due, which could further guide expectations for the Federal Reserve’s meeting next week.

Wall Street futures were down around 0.5%, after the posted its biggest one-day percentage gain since June 2020 on Wednesday.

“U.S. equities could be in a holding pattern with higher levels of volatility as investors assess the impact of the Ukraine conflict on inflation and possible Fed actions,” said David Chao, Hong Kong-based global market strategist at Invesco.

MSCI world equity index, which tracks shares in 50 countries, was up 0.2%.

OIL STEADIES

Oil steadied after falling over 12% in the previous session as investors weighed whether major producers would boost supply to help plug the gap in output from Russia sparked by sanctions.

futures added over 3% on Thursday to $114.64 a barrel, and rose 1.73% to $110.58.

The Kremlin accused the United States on Wednesday of declaring an economic war on Russia that was sowing mayhem through energy markets, and put Washington on notice it was considering its response to a ban on Russian oil and energy.

European Union leaders will also phase out buying Russian oil, gas and coal, a draft declaration showed on Thursday, as the bloc seeks to reduce its reliance on Russian sources of energy, following a ban from the United States.

Higher energy prices fed into expectations the U.S. Federal Reserve will raise interest rates by 25 basis points at its policy meeting next week.

Data due later in the day is expected to show U.S. consumer inflation racing at a 7.9% annualised clip in February.

The was up 0.2% at 98.234, after tumbling 1.2% overnight amid the euro and equities’ surge.