* World shares inch closer to record peak, up 0.3%
* Yellen calls regulator meeting on GameStop volatility
* Italian assets shine on prospect of Draghi becoming PM
* Silver rebounds, Brent crude prices at 11-month high (Updates prices, adds detail)
MILAN, Feb 3 (Reuters) - World shares rose on Wednesday as volatility caused by a retail trading frenzy on Wall Street subsided on expectations of tougher regulation, while optimism about U.S. fiscal stimulus also supported sentiment.
The prospect of former ECB chief Mario Draghi becoming prime minister in Italy added to the cheer, along with record sales at Google parent Alphabet which offset an initial tepid reception to news that Amazon founder Jeff Bezos will step down as CEO.
The MSCI world equity index was up 0.3% by 1300 GMT, rising for a third straight session and inching closer to its record peak, driven by gains in Asia overnight and a positive session across Europe.
World shares recovered from wild swings last week when a Reddit-driven trading fever boosted heavily shorted stocks like GameStop, forcing hedge funds to reduce their equity books.
Investors were bracing for tougher U.S. market regulation after Treasury Secretary Janet Yellen asked to discuss whether trade had been consistent with fair and efficient markets. Officials were set to meet as soon as Thursday.
“Regulators have acknowledged the tumult,” Deutsche Bank strategists led by Jim Reid said in a note.
Mass buying by amateur investors had lifted GameStop, the U.S. videogame retailer at the core of the frenzy, tenfold before the shares started deflating. In pre-market trade on Wednesday they were down 81% from their peak.
Markets also had renewed hopes for U.S. President Joe Biden’s proposed $1.9 trillion COVID-19 aid bill after the Senate took steps to allow Democrats to pass Biden’s package without Republican support.
Nasdaq and S&P 500 futures were up 0.6 and 0.3% respectively. The CBOE volatility index, also known as Wall Street’s fear gauge, fell to a one-week low of 24.7.
Shares in Alphabet rose more than 7% in premarket trade after it topped quarterly sales expectations for its advertising and cloud businesses.
Amazon.com shares were less buoyant as the departure of Bezos raised questions about what’s next for the group, overshadowing quarterly sales surging above $100 billion for the first time ever.
DRAGHI TO THE RESCUE?
Italian bonds and stocks outperformed on expectations former European Central Bank chief Draghi could become the country’s next prime minister, ending weeks of political crisis.
Italy’s 10-year bond yield fell more than 10 basis points at one point to 0.548%, its lowest in two weeks, while Italian stocks rose 2.5%, lifted by banks.
The gap between Italian and German 10-year yields narrowed to 105.10 bps from 113 bps late on Tuesday.
After meeting with the head of state, Draghi accepted the task of trying to form a new government and said he was confident of securing sufficient backing in the fractured Italian parliament.
“A Draghi-led government with a clear mandate and a wider majority is likely to be seen by investors and European partners as the most credible option to face Italy’s policy challenges,” said UBS analysts and economists led by Giovanni Montalti.
“A technocratic government represents the upside case scenario,” they added.
Elsewhere, spot silver, which briefly surged on Monday as small traders bought up the metal, rose 1% to $26.9 an ounce as it rebounded from an 8% tumble on Tuesday. Analysts said the retail trader-driven rally to a near eight-year peak in the previous session had faded.
Spot gold was little changed at $1,837.5 per ounce.
Oil prices continued their upswing, supported by an unexpected draw in U.S. crude stockpiles and a producer estimate of a global oil market deficit this year.
Brent crude futures hit an 11-month high and were last up 1% at $58.07 a barrel, while U.S. crude futures climbed 0.9% to a new one-year high at $55.27.
In foreign exchange markets, the euro dropped to a 2-month low against the dollar, as investors looked to a widening disparity between the strength of U.S. and European pandemic recoveries.
A survey on Wednesday showed the euro zone’s economic downturn deepened in January as renewed restrictions hit the bloc’s dominant service industry hard.
Reporting by Danilo Masoni; additional reporting by Stanley White and Imani Moise; Editing by Pravin Char, Kirsten Donovan