(removes typo in headline, changes wording in para 13 to sterling "sank as low as $1.3225 " instead of "sank as much as $1.3225")
* MSCI world shares supported by optimism about U.S. earnings
* Asian, European shares rise modestly amid trade war lull
* Politics pressure British pound, Turkish lira
* Oil prices inch back towards $80 a barrel on supply constraints
By Sujata Rao
LONDON, July 10 (Reuters) - World shares hovered near three-week highs on Tuesday, supported by optimism about U.S. company earnings and hopes that global economic growth can withstand trade tensions, although political bickering kept British markets on the backfoot.
Wall Street was set for a firmer opening after enjoying its best session in a month on Monday, its gains filtering across Asia, where bourses from Hong Kong to Tokyo ended the day firmer .
European shares also rose, with a pan-European equity index up 0.5 percent after touching a two-week high on Monday, while MSCI's all-country index rose to a three-week high before easing to trade flat on the day.
Markets clearly remain on edge over the possible escalation in trade wars after China and the United States slapped tit-for-tat tariffs on $34 billion worth of each other's goods.
While that raises fears of a global growth slowdown, no fresh salvos have since been fired. Markets also took heart from Friday's U.S. jobs data that suggested the Federal Reserve might not tighten policy as aggressively as feared. And German export figures and Chinese factory gate prices this week have offered some reassurance on economic momentum.
Above all, investors are pinning hopes on U.S. second-quarter corporate results, which start in earnest this week and are expected to showcase earnings growth of over 20 percent across all sectors, thanks to recent tax cuts, high oil prices and robust economic growth.
"Markets are anticipating a strong U.S. earnings season, led by energy, healthcare and tech," said Peter Garnry, head of equity strategy at Saxo Bank in Copenhagen.
Futures for the S&P 500, Dow Jones and Nasdaq were as much as 0.3 percent higher. They look set to extend Monday's jump which was driven by bank shares before heavyweight lenders JPMorgan, Wells Fargo and Citi report earnings on July 13.
With banks estimated to have enjoyed a $5 billion first-quarter tax-cut windfall, S&P's banks index posted its sharpest rise since March 26 on Monday.
However, the earnings season comes amid rising trade tension meaning analysts will scrutinise profit outlook statements to see whether to adjust earnings expectations for the rest of 2018.
"I doubt the upcoming earning season will carry world markets to new highs. The numbers will be strong but equity markets are dominated by the outlook and we know the outlook is clouded by the trade issue," Garnry added.
Such fears showed up in the latest reading of Germany's ZEW monthly survey, which showed investor sentiment at six-year lows despite recent upbeat economic data.
In Britain, sterling is pressured by fears that cabinet resignations could lead to rebellion in the ruling party's ranks, toppling Prime Minister Theresa May or triggering fresh elections. While this looks unlikely, the uncertainty saw sterling sink as low as $1.3225 before recovering slightly .
"We anticipate elevated headline risks for sterling over the coming weeks," analysts at the Commonwealth Bank of Australia told clients, though they noted that sterling's cheap "real" valuation -- against trade partners' currencies and adjusted for inflation -- could cushion it against further sharp falls.
A Bank of England rate hike may also support the pound, with markets assigning a roughly 60 percent chance of a 25 basis-point rate hike in August.
The ZEW data undermined the euro, pushing it half a percent lower, while a dollar index rose off 3-1/2 week lows , to firm 0.4 percent.
Politics also dominated Turkey, where President Tayyip Erdogan's new cabinet lacked market-friendly names and included instead his son-in-law as finance minister.
Turkish five-year credit default swaps (CDS), used to insure against default or restructuring, rose more than 20 bps, while the lira gave up initial gains that had seen it reverse some of Monday's 3 percent fall.
Meanwhile, Brent crude - up almost 20 percent this year - rose another $1 per barrel to over $79 as a Norwegian oil workers' strike added to the picture of supply shortages following output disruptions in Canada and Libya.
Money managers have raised bullish bets on crude in the week to July 3, data showed on Monday.
Reporting by Sujata Rao; additional reporting by Wayne Cole and Swati Pandey Editing by Raissa Kasolowsky