Global shares rose on the belief more central banks will be forced to cut interest rates to shelter the global economy from the trade wars, but crash-out Brexit fears weighed heavily on sterling.
Stock markets from Dublin to New York gained after the latest weak US jobs report pointed to a sharp slowdown in the US economy, even before the latest flare-up in trade tensions with China and Mexico.
"This [jobs] number won’t spook the Fed into cutting rates any time soon, but it perhaps gets filed away in ‘things to monitor’, along with the slight drop in wage growth.
"Having recouped some of May’s losses, equities look primed for more upside, especially if some of the money that has gushed out of equity funds over the past few weeks starts to come back," said Chris Beauchamp, chief market analyst at online broker IG.
However, Capital Economics in London said investors' faith in the US central bank were "misplaced" and it predicts the US S&P 500 will "fall sharply before the year is out".
Sterling fell sharply against the euro, to 88.91 pence, as traders continued to monitor British politics and the race for Tory contenders to be elected prime minister.
And a survey by Bloomberg suggested that sterling may slide to a two-year low against the dollar if a hardline eurosceptic takes over as the UK leader.
Sterling could drop more than 2% to $1.24 in the event a Brexiteer who supports a no-deal split from the EU replaces Theresa May, according to the poll.
While the survey sees such an outcome as the most likely scenario with a 70% probability, analysts expect MPs to provide a barrier against a no-deal exit and prevent a bigger drop in the currency.
The pound’s fortunes have ebbed and flowed since the 2016 EU referendum along with the chances of a Brexit deal.
With Ms May stepping down after failing to get her agreement with Brussels through a divided parliament, some of her leadership rivals are trying to put a no-deal exit back on the table as they seek support from a eurosceptic in the Conservative Party.
“A PM who supports hard Brexit does not necessarily mean a hard Brexit being materialised,” said Petr Krpata at ING.
“There appears no majority in the parliament for hard Brexit and also the PM, when elected, may loosen his or her current hard Brexit stance,” he said.
Candidates including former Foreign Secretary Boris Johnson -- the current favourite -- and former Brexit Secretary Dominic Raab have said they would be prepared to allow a no-deal Brexit in order to make sure Britain leaves the EU by the deadline of October 31.