September 4, 2019 / 12:59 PM / 12 days ago

GLOBAL MARKETS-Easing political worries lift shares, pound jumps

(Adds U.S. futures, details, updates prices throughout)

* World stocks up 0.5% as Europe rallies, Wall St futures up

* Pound up 1% after PM Johnson's setback in parliament

* Italy bond yields hit new lows on prospect of new govt

* Sentiment helped as Hong Kong kills extradition bill

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

By Danilo Masoni

MILAN, Sept 4 (Reuters) - Britain's pound bounced from three-year lows on Wednesday after a parliamentary vote raised the prospect of another delay to Brexit, while an easing of worries about political risk in Italy helped push world stocks higher.

Global stocks rose 0.5% by 1232 GMT, as Europe rallied 0.9% after a positive session in Asia following a report showing that growth in China's service sector accelerated despite broader economic headwinds.

Hong Kong's withdrawal of an extradition bill that triggered months of unrest, throwing the Chinese-ruled city into its worst crisis in decades, also caused big relief.

Hong Kong's main share index surged nearly 3.9%, scoring its biggest one-day gain since Nov. 2018, while in Europe, Asia-exposed banks and luxury stocks rose sharply.

U.S. futures also pointed to a strong Wall Street start, as the encouraging data from China and global political news helped offset worries over growth and trade that caused losses on Tuesday.

British lawmakers defeated Boris Johnson on Tuesday in a bid to prevent him taking Britain out of the European Union without a divorce agreement, prompting the prime minister to demand a Oct. 15 snap election.

On Wednesday they will seek to pass a law forcing Johnson to ask the European Union to delay Brexit until Jan. 31 from Oct. 31 unless he has an exit deal approved by parliament beforehand.

UK developments lifted the pound 1% to above $1.22 for the first time since Aug.30 after sliding on Tuesday to its lowest since October 2016.

"The road from here is likely to be very tricky, especially if PM Boris Johnson takes the path towards a snap election," said Hussein Sayed, Chief Market Strategist at FXTM.

"However, Mr. Johnson needs at least two-thirds of MPs to vote in favour of one, and so far, the Labour party doesn't seem willing to take this risk. If the opposition party manages to get Brexit delayed in the outcome of no deal, we can see sterling recover further from here," he added.

Elsewhere in currency markets, the dollar index against a basket of six major currencies fell to 98.616 after rising overnight to 99.370, its highest level since May 2017.

The index started to lose ground on Tuesday after data showed the U.S. manufacturing sector contracted in August for the first time since 2016, a reading that in turn has cemented expectations of further policy easing by the Federal Reserve.

The euro rose to $1.0987 after sliding to a 28-month low of $1.0926 overnight, boosted by the weaker dollar and after some European policymakers introduced doubt over the scale of a ECB stimulus package expected next week.

ITALIAN YIELDS AT NEW LOWS

In Italy, members of the anti-establishment 5-Star Movement backed a coalition deal with the centre-left Democratic Party on Tuesday, opening the way for a new government to take office the coming days.

As a result, 10-year Italian government bond yields hit 0.803%, a new record low, while Italian banks , another proxy for political risk in the country, rallied 2%.

"The next hurdle for the government will be the confidence vote in Parliament. But at the moment risks appear limited," said Giuseppe Sersale, fund manager at Anthilia Capital.

Political concerns and expectations of further easing measures by central banks have been squeezing bond yields globally but the return of risk appetite on Wednesday on the back of political developments in Europe and upbeat economic data from China triggered a rebound.

After falling to a fresh record low on Tuesday, yields on the safe-haven 10-year German Bund jumped to their highest level in over a week, while the yield on the 10-year U.S. Treasury rose to 1.497% after hitting its lowest since July 2016 in the previous session in light of the weak ISM U.S. factories reading.

In commodities, oil prices rose, as the positive China data helped them recover from a nearly one-month low on fears over the weakening global economy.

Brent crude was up 59 cents at $59.21 a barrel, while U.S. West Texas Intermediate futures gained 94 cents at $54.87 at barrel.

London copper prices rebounded from a two-year low and gold prices dipped as political concerns in Europe and Asia eased, improving risk appetite.

For Reuters Live Markets blog on European and UK stock markets, please click on: LIVE/ (Reporting by Danilo Masoni in MILAN, additional reporting by Shinichi Saoshiro in TOKYO; Editing by Catherine Evans and Andrew Cawthorne)

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