* British PM May battles to save Brexit deal and her job
* World stocks gauge set to snap five-day losing streak
* Wall St erases losses amid trade optimism
* Oil rises despite potential looming supply glut (Updates with afternoon U.S. trading)
By Lewis Krauskopf
NEW YORK, Nov 15 (Reuters) - Sterling tumbled on Thursday as political developments in Britain rippled through currency, bond and equity markets, while the major U.S. stock indexes erased losses from earlier in the session helped by optimism over U.S.-China trade.
Fueled by Wall Street's reversal, a gauge of global stock markets was on track to snap a five-day streak of declines. Oil prices rose to recoup some losses from a recent steep plunge.
In Britain, Prime Minister Theresa May vowed to fight for her draft divorce deal with the European Union after the resignation of her Brexit secretary and other ministers put her strategy and her job in peril.
Sterling was last trading at $1.2773, down 1.70 percent on the day, and also fell steeply against the euro.
The pan-European STOXX 600 index lost 1.06 percent, while Britain's FTSE 250 dropped 1.3 percent.
"The Brexit news acted as a catalyst ... I think that what investors are acting upon is uncertainty," said Stephane Barbier de la Serre, a strategist for Makor Capital Markets.
On Wall Street, the Dow Jones Industrial Average rose 205.23 points, or 0.82 percent, to 25,285.73, the S&P 500 gained 25.45 points, or 0.94 percent, to 2,727.03 and the Nasdaq Composite added 111.82 points, or 1.57 percent, to 7,248.21.
investors said they were encouraged by recent news, including a modest inflation number perhaps leading to less aggressive rate-hike path by the Federal Reserve and that U.S. and China leaders were set to meet at a G20 summit later this month.
"In terms of catalysts for the rest of the year, we have the G20 meeting and we have the Fed meeting," said Sunitha Thomas, Regional Portfolio Advisor at Northern Trust Wealth Management. "Now that we have finished earnings, that is pretty much what everyone is focused on."
Stocks also seemed to be rising on a Financial Times report that the U.S. trade representative has told some industry executives the next tranche of tariffs on Chinese imports has been put on hold.
MSCI's gauge of stocks across the globe gained 0.59 percent, set to snap a five-session streak of losses.
The dollar index, which measures the greenback against a basket of currencies, rose 0.18 percent, with the euro up 0.33 percent to $1.1345.
U.S. retail sales rebounded sharply in October as purchases of motor vehicles and building materials surged, likely driven by recovery efforts in areas devastated by Hurricane Florence.
Benchmark U.S. 10-year notes last fell 1/32 in price to yield 3.1232 percent, from 3.12 percent late on Wednesday.
Nerves among Britain government bond investors forced the country's debt agency to accept low-ball bids for a 20-year bond at auction.
Oil rose, steadying after steep recent declines as fuel stockpile declines in the United States helped offset concerns about a potentially oversupplied market next year.
U.S. crude rose 0.53 percent to $56.55 per barrel and Brent was last at $66.74, up 0.94 percent on the day.
Additional reporting by Josephine Mason, Helen Reid and Marc Jones in London; Editing by Angus MacSwan and Nick Zieminski