LONDON: Stock markets rallied Tuesday to fresh record highs as investors bet on reduced economic fallout from the Omicron variant, while oil prices pushed higher as OPEC and its allies raised output.

Traders kept a close watch also over high inflation concerns and potential fallout stemming from embattled Chinese property giant Evergrande.

London kicked off its 2022 trading with strong gains for the travel sector that helped push the FTSE 100 above 7,500 points for the first time since 2020, while the British pound reached a near two-year high versus the euro.

"The FTSE 100 has set off on a sprint of New Year optimism, shaking off worries of inflation and concerns about the Chinese property market," noted Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

"Stocks reliant on international travel are powering ahead, with British Airways owner, International Consolidated Airlines Group, rising seven percent in early trade."

While Covid variant Omicron is spreading like wildfire around the world, it appears to be far less severe than initially feared, raising hopes that the pandemic could be overcome and life return to more normality.

"The absence of fear surrounding omicron combined with the continued belief the global economy will recover is driving equity markets higher," said market analyst David Madden at Equiti Capital.

However, inflation, supply chain snags, central bank policy tightening and geopolitical woes continue to weigh on sentiment and analysts have warned that the blockbuster stock market gains seen in recent years could be tougher to attain.

Despite the strong start, "we expect 2022 to be far more challenging from an investment perspective", said Heather Wald of Bel Air Investment Advisors.

"Rarely has a market delivered three consecutive years of double-digit returns, as we have seen from 2019-2021."

European and Asian equity markets enjoyed strong gains Tuesday, with the CAC 40 in Paris striking new intraday and closing records, following fresh record closes Monday on Wall Street.

US stocks pushed even higher at the open of trading on Tuesday, with both the Dow and S&P 500 striking fresh all-time highs.

The S&P 500 later fell back, however, and the tech-heavy Nasdaq lost 1.8 percent in late morning trading.

Shares in indebted Evergrande rallied Tuesday after a day-long suspension, as the company confirmed it had been ordered to demolish part of a resort in Hainan province.

OPEC+ hikes output

Investors were looking ahead also to Wednesday's release of minutes from the Federal Reserve's December policy meeting, hoping for insight into its plans amid surging inflation, that is forcing central banks to wind back pandemic stimulus and raise interest rates.

The Fed has already started tapering its bond-buying programme and the focus is now on what it will do with interest rates, with some commentators predicting three hikes before 2023.

Elsewhere, OPEC and its allies, as expected, maintained their practice of modestly increasing oil output every month as the rapidly spreading Omicron variant has so far not heavily hit demand.

The OPEC+ grouping, including top producers Saudi Arabia and Russia, has resisted US pressure to more widely open the taps as high energy prices are fuelling a surge in inflation across the world.