* Brexit uncertainty hits pound, euro, buoys dollar
* MSCI Asia Ex-Japan index down 0.5 pct
* U.S. dollar hits new 16-month high
* Weak China data, U.S. Fed rate hike expectations weigh
* Oil prices surge on Saudi production cut plans (Updates throughout, changes byline, dateline)
By Sujata Rao
LONDON, Nov 12 (Reuters) - The dollar surged to nearly 17-month highs on Monday against a basket of major currencies as investors sought out the highly liquid and high-yielding currency against a backdrop of global growth worry and rising political risk in Italy and Britain.
A 2 percent oil price jump initially supported European equities but the gains fizzled rapidly as fears grew for Italian lender Carige whose shares were suspended after reports of a capital hole.
While Shanghai was lifted one percent by regulators' promise to simplify share buybacks, MSCI's world equity index was down 0.3 percent and Asian markets broadly weakened following Friday's weak Wall Street close.
Investors fretted over signs of slowing growth in China where e-commerce giant Alibaba posted the slowest ever annual sales growth during its Singles Day shopping event .
Many also reckon that U.S. President Donald Trump could turn up the heat over trade, further damaging China's economy.
All that, coupled with European political risks, conspired to push the dollar 0.6 percent higher against a basket of currencies. Sterling fell almost 1 percent while the euro, which comprises over 50 percent of the dollar index, lost 0.7 percent to its lowest since July 2017.
"King dollar has staged a return," Valentin Marinov, head of G10 FX strategy at Credit Agricole, said, adding that investors had piled back into the dollar after last week's U.S. Federal Reserve meeting confirmed a rate-tightening path.
"Euro and pound are both hurt by political risk and that is aggravating underperformance versus the dollar," Marinov said.
In Britain, there is doubt the government will be able to secure a Brexit agreement that satisfies the European Union as well as members of the ruling party, and Prime Minister Theresa May was forced to abandon plans for an emergency cabinet meeting to approve a deal, the Independent reported.
The opposition Labour Party said that if May's Brexit deal was voted down in parliament, it would push for a national election and also possibly another referendum.
Deutsche Bank analysts suggested more pain ahead, telling clients: "not enough risk is priced into sterling given the parliamentary problems ahead."
For the euro, Italy was the main focus, with Rome facing a Tuesday deadline to submit a revised budget to the EU, though it has so far refused to cut the draft budget deficit, setting the stage for a collision with Brussels.
Markets were also spooked by reports that Banca Carige would need around 400 million euros ($451 million) to plug a hole in its capital base and Italy's deposit protection fund could fill only part of it.
That raises the spectre of a banking crisis in the euro zone's third-biggest economy, weakening Italian shares and keeping Italy's bond yield spread over Germany -- the risk premium attached to Italian assets -- around the psychologically key 300 basis-point mark.
Bernd Berg, global macro strategist at Woodman Asset Management predicted the euro to tumble below $1.10 from the current $1.126 "as renewed eurozone and Brexit angst and a diverging economic outlook with a strong U.S. economy versus a weakening eurozone economy will trigger further euro selling pressure."
All of this has been good news for dollar bulls, who have benefited from safe-haven flows. Against the Japanese yen the dollar gained 0.3 percent, touching its weakest since Oct. 4, while it also rose 0.4 percent to the Swiss franc.
U.S. shares were set to open flat during a session likely to be thinned by the Veterans Day holiday, with Treasury bond markets shuttered. Futures for the S&P500, Dow Jones and Nasdaq were flat to slightly firmer after sharp falls on Friday.
The other big move was in commodities, where Saudi Arabia's energy minister took some pressure off last week's oil price drop, saying on Sunday that Riyadh could reduce supply to world markets by 500,000 barrels per day in December, a global reduction of about 0.5 percent.
That jolted Brent crude futures more than 2.07 percent to a high of $71.88 per barrel. However, the supply cut may prove to be a temporary solution to falling prices as global growth slows, with two of the world's biggest economies - Germany and Japan - expected to report a contraction in output in coming days.
"Supply-side surprises appear to be the main culprit, but concern that global demand is slowing may also be creeping into markets and weighing on risk appetite," the ANZ analysts said.
Reporting by Sujata Rao, additional reporting by Andrew Galbraith in Shanghai Editing by Robin Pomeroy