* Italian bank shares jump 5 percent on deficit cut hopes
* Pound up vs dollar after Brexit agreement
* Wall Street opens higher on retail bounce
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh (Adds oil price settlement; euro reverses; updates throughout)
By Hilary Russ
NEW YORK, Nov 26 (Reuters) - U.S. stocks rose on Monday, fueled by gains in retailer shares during a prime holiday shopping period, while European stocks rallied after signs that Italy was preparing to rework spending plans that have fueled tensions with the European Union.
Oil bounced back after its own "black" Friday, adding to risk-on sentiment, and the pound rose after Britain's Brexit agreement won approval from European leaders.
Italy's governing coalition may reduce next year's budget deficit target to as low as 2 percent of gross domestic product to avoid disciplinary action from the European Commission, Reuters reported.
Currently, Italy's deficit target is 2.4 percent, far higher than the 0.8 percent set by the previous government. The country's budget has put it in dispute with the Commission and alarmed the euro zone.
The prospect of a lower deficit sent Italy's banks index up 4.83 percent on Monday, toward its strongest day since June. An equally strong rally in bond markets sent Italian borrowing costs to their lowest since September.
The euro was down 0.1 percent to $1.1329, while sterling was last trading at $1.2811, down 0.01 percent on the day.
The euro gave up earlier gains against the greenback after European Central Bank President Mario Draghi acknowledged slowing growth in the region.
The dollar index rose 0.14 percent.
Wall Street rose as retailers anticipated $7.8 billion in sales on the largest online shopping day of the year, with shoppers who missed out on Black Friday deals expected to flock to the internet for Cyber Monday.
"All indications are that the holiday shopping sales are robust, and consumer discretionary is catching a little bit of a break today over enthusiasm over Black Friday, Cyber Monday," said Art Hogan, chief market strategist at B. Riley FBR in New York.
The Dow Jones Industrial Average rose 312.63 points, or 1.29 percent, to 24,598.58, the S&P 500 gained 38.74 points, or 1.47 percent, to 2,671.3 and the Nasdaq Composite added 129.71 points, or 1.87 percent, to 7,068.69.
The pan-European STOXX 600 index rose 1.23 percent and MSCI's gauge of stocks across the globe shed 0.48 percent.
On Friday, the S&P 500 recorded its lowest close in six months, down more than 10 percent from September's peaks, pushing it back into "correction" territory.
Oil rose above $60 a barrel on Monday, recovering some of the previous session's near-7 percent fall, although uncertainty over global economic growth limited the gains.
U.S. crude oil futures settled at $51.63 per barrel, up $1.21 or 2.4 percent.
Brent settled at $60.48, up $1.68 or 2.86 percent. (Additional reporting by Marc Jones, Amanda Cooper and Tom Finn in London; Karen Brettell in New York; Amy Caren Daniel in Bengaluru; Editing by Dan Grebler)