August 29, 2019 / 1:30 PM / 3 months ago

GLOBAL MARKETS-Europe cheers Italy pact, bond bulls pause for breath

* European shares, Italy and Greece bonds rally on Rome pact

* Yields on US 30-yr, German 10-yr bonds edge up off record lows

* Gold near 6-year high, silver shines

* Pound groggy over plans for UK parliament suspension

* Argentina says wants to restructure chunk of debt

By Marc Jones

LONDON, Aug 29 (Reuters) - Signs that Italy's latest political drama was over and hopeful noises from China in its trade war with the United States pushed share markets higher on Thursday and paused the relentless steamrolling of global bond yields.

There was still plenty for bearish investors to chew on, however: A sudden rush from Argentina to restructure its debt thrust emerging market risk back into the spotlight, a downgrade to U.S. Q2 growth kept global recession worries simmering, and the pound was groggy after another Brexit-related tumble.

Nevertheless, European shares and Wall Street futures both rose nearly 1% in the slipstream of an almost 2% leap in Italy where government bonds also rallied hard.

That was after Italy's president asked Giuseppe Conte, who had only just resigned as prime minister, to return to head up a new coalition of the anti-establishment 5-Star Movement and the opposition centre-left Democratic Party (PD).

Markets welcomed the quick end to a three-week political crisis that had been triggered by the leader of the hard-right League party, Matteo Salvini, who pulled his party out of its governing alliance with 5-Star after weeks of public bickering.

The 5-Star and PD still need to agree on a shared policy platform and a team of ministers, but 5-Star chief Luigi Di Maio and PD counterpart Nicola Zingaretti said they had pledged to find common ground for the good of the country.

"We love Italy and we consider it worthwhile to try this experience," Zingaretti told reporters. Speaking shortly afterwards, Di Maio said: "We made commitments to the Italians...and come what may we want to fulfil them."

There was little reaction from the euro despite the surge in stocks and bonds, but in any case there was barely any currency market action generally.

The Japanese yen was a touch softer but heading for its biggest monthly rise since May, while sterling steadied at $1.22 after Prime Minister Boris Johnson's plan on Wednesday to suspend Britain's parliament re-aggravated worries that Britain could leave the European Union without a transition deal.

China's yuan also managed to snap a 10-day losing streak although only thanks to a late rebound as Beijing said it and Washington were discussing the next round of face-to-face trade talks in September, and voiced hopes Donald Trump would cancel plans for additional trade tariffs.

In the latest tit-for-tat escalation of the trade war between the world's two largest economies, U.S. President Trump last Friday announced additional duties of 5% on targeted Chinese imports worth about $550 billion to be imposed in stages from Sept. 1 to mid-December.

The announcement came hours after China had unveiled retaliatory tariffs on $75 billion worth of U.S. goods.

"The most important thing at the moment is to create necessary conditions for both sides to continue negotiations," China's commerce ministry spokesman, Gao Feng, told reporters.

HOW LOW CAN YOU GO

He spoke after a choppy Asian session where MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.15%, Singapore shares hit eight-month lows and Japan's Nikkei ended fractionally lower.

Bond markets around the world were also still grappling with recession worries. Yields on 30-year U.S. Treasuries and 10-year German bunds had both hit record lows - 1.905 percent and minus 0.716 percent respectively - and the 10-year Japanese yield was just above its record low of minus 0.300% touched in 2016.

"Falls in global bond yields reflect growing concerns that long-term global growth is slowing down on U.S.-China tensions and worries over subsequent global supply chain disruptions," said Tomoo Kinoshita, global market strategist at Invesco Asset Management in Tokyo.

"Stock markets on the other hand are supported in the near-term by hopes of more stimulus, notably from the Federal Reserve and the European Central Bank," he said.

The two major central banks are expected to cut rates next month, while many investors believe the Bank of Japan could join the fray if market sentiment weakens further.

ARGENTINA RESTRUCTURING

Precious metal investors were still on a quest to buy safer assets.

Gold rose as high as $1,543 per ounce, near six-year highs of $1,556.1 set earlier in the week, while silver rose 1.2% to $18.55 per ounce - just shy of a 2017 peak of $18.65 an ounce.

Also reflecting market nervousness, the Merrill Lynch move index, a gauge of investor expectations on how volatile U.S. bonds will be, has risen back to near three-year highs marked earlier this month.

The MSCI emerging market currency index was also at its lowest levels since mid-November, having fallen 0.9% so far this week; it is now set for its biggest monthly fall in more than seven years.

The latest hit came in Argentina, which said it wanted to restructure a large chunk of its bonds by extending their maturities, and to "re-profile" the maturities of debt owed to the IMF under a $57 billion standby agreement.

The battered Argentine peso was poised for action having taken another hammering on Wednesday despite another day of heavy central bank intervention in the foreign exchange market.

Argentine assets have been slammed since business-friendly President Mauricio Macri was trounced in primary elections by centre-left Peronist challenger Alberto Fernandez.

"President Macri instructed me to solve the short-term problem to guarantee electoral stability, but also in the medium- and long-term so as not to leave a problem for the person who follows, be it he or another candidate," Argentine Treasury Minister Hernan Lacunza said.

Reporting by Marc Jones Editing by Mark Heinrich

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