LONDON: US and European stocks mostly fell on Friday as inflation and growth fears pulled the rug out from under a rally driven by hopes of an easing in tensions between the US and China.

News that the heads of the world's two biggest economies, US President Joe Biden and Chinese leader Xi Jinping, talked for the first time in seven months sent Asian stocks fizzing higher.

European and US stocks initially followed suit but later fell back on worries about inflation and the continued impact of the pandemic on economic recovery.

News that the UK economic recovery slowed sharply in July, growing by just 0.1 percent as rising Covid cases and supply shortages offset the end of lockdown curbs, dampened sentiment.

The retreat in share prices "suggest that there is increasing anxiety amongst investors over the growth outlook, as well as the effect that continued increases in prices, and supply chain disruption, could well have on spending patterns, as well as wages," said Michael Hewson, chief market analsyt at CMC Markets UK.

London nevertheless ended the day with a small gain of less than 0.1 percent thanks to gains by commodities firms which profited from hopes for a calm in trade tensions between China and the US. Oil prices also got a boost from the Biden-Xi talks, shooting up 2.0 percent.

Paris stocks shed 0.3 percent and Frankfurt gave up less than 0.1 percent.

As for the United States, it was data showing that producer prices rises hit a record 8.3 percent in August that unnerved investors.

Consumer price inflation data is due out next week, and Hewson said "it would be rather odd if some of these price rises didn't start to trickle down into the headline CPI rate in next week's numbers."

He added rising prices may also help explain why consumer confidence has started to slide back, with means that retail sales data next week will be scrutinised by investors as an indicator of consumer sentiment.

US stocks were lower in late morning trade, with the Dow down 0.4 percent.