* Euro rises past $1.17 as Italy risks subside
* Dollar down despite Friday's strong U.S. jobs report
* Australian dollar surges to highest since April
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh
By Tommy Wilkes
LONDON, June 4 (Reuters) - The euro climbed on Monday after political tensions eased in Italy, supporting a rebound in risk appetite as worries about an escalating trade battle between the United States and other major economies took a back seat.
Better-than-expected U.S. jobs data last week underlined the strength of the U.S. economy and the near-certainty of a Federal Reserve interest rate hike this month, as well as increasing expectations of a fourth hike this year, factors which have powered a recent revival in the dollar.
But with signs of less uncertainty in Italy as it forms a new government, the euro was able to claw back some gains.
Rallying stock markets also helped investors to shrug off concerns that trade disputes among the world's largest economies will hit growth.
German Chancellor Angela Merkel's weekend statement that Germany was in favour of a moves toward a European Monetary Fund to resolve issues of euro zone sovereign debt sustainability also helped lift the mood at the start of the week.
The euro rose as much as half a percent to $1.1714, pulling further away from 2018 lows of $1.151 plumbed last week.
ING analysts said the worst seemed to be over for the euro, at least in the near term.
"We suspect euro/dollar has seen its bottom at $1.1510 and is unlikely to re-test it this week. With the Italian political situation stabilising, the euro zone risk premium should now be less of a negative driver of euro/dollar," they said.
The prospect of a snap election in Italy shook investor risk sentiment at the start of last week as some feared the vote could effectively turn into a referendum on the country's euro membership.
But the euro has drifted up since then as markets gained some composure after a deal was reached on a coalition government, averting potentially destabilising snap elections.
However, many analysts caution that events in Italy, where the government between two anti-establishment parties says it will increase spending, slash taxes and challenge European Union fiscal rules, will continue to curb significant euro gains.
"While worries over Italy may have subsided somewhat, the bottom line is that the U.S. economy is doing better than its European peers, and this will continue to weigh on the euro," said Shin Kadota, senior strategist at Barclays in Tokyo.
The dollar slipped more broadly, its index against a basket of currencies falling 0.3 percent to 93.892. It also gave up some of its earlier gains versus the yen.
The Australian dollar surged 0.8 percent to its highest level since April on an improvement in broader risk sentiment and upbeat domestic data showing strong company profits and a rise in retail sales. The Aussie rose to $0.7630.
The New Zealand dollar also gained 0.4 percent to $0.7016 while the Canadian dollar slid half a percent.
The euro rose 0.3 percent versus the Swiss franc to 1.1547 francs as the rebound in risk appetite knocked the Swiss currency, which usually rises in times of market uncertainty. (Additional reporting by Shinichi Saoshiro in TOKYO; editing by John Stonestreet)