October 29, 2018 / 2:31 PM / 14 days ago

GLOBAL MARKETS-Car stocks and Italy rating relief drive Europe's recovery

* STOXX50E up 1.4 pct as Italy relief boosts European shares

* Italian bank stocks rise after S&P keeps rating unchanged

* China data shows slowing industrial profit growth

* EM stocks rise after Bolsonaro wins Brazil election

* Crude prices tumble as investors price in easing growth

By Helen Reid

LONDON, Oct 29 (Reuters) - European shares climbed and Wall Street was set for a stronger open on Monday thanks to a surge in autos stocks and relief that Italy dodged a ratings downgrade.

Europe's autos sector jumped 4.9 percent, set for its strongest day since August 2015, after a report that China was considering halving the tax on car purchases in an attempt to boost demand for autos, which has been hurt by a trade war and slowing economic growth.

Germany's DAX jumped 2.1 percent by 1310 GMT, boosted by carmakers BMW, Daimler and Volkswagen, while the leading index of euro zone stocks rose 1.5 percent.

Italy's FTSE MIB led the market with a 2.4 percent gain after Italian bond yields fell sharply to a one-week low following Standard & Poor's decision to leave Italy's sovereign rating unchanged, prompting relief there was no ratings downgrade.

This also pushed Italian bank stocks up as much as 4.5 percent, set for their strongest day since Sept. 10.

Strong gains across Europe helped boost U.S. stock futures back into the positive, with the Nasdaq futures up 1.4 percent, S&P 500 futures up 1.1 percent and Dow Jones futures up 0.7 percent.

The MSCI world equity index, tracking shares in 47 countries, extended early gains to rise 0.4 percent. The index is down 9.3 percent so far this month and has shed $6.7 trillion in market capitalisation since its January peak.

Investors shrugged off news German Chancellor Angela Merkel would not seek re-election as party chairwoman, as she said she would serve her full term as chancellor until 2021. Analysts saw little likelihood of policy disruption.

Her decision, which followed bruising losses for her Christian Democrats in a regional election in Hesse, heralded the end of an era in which she has dominated European politics.

Despite gains on Monday, investors remained wary of betting on a turnaround in risk.

"The only way I can summarize the core sentiment among the European investors I met is something like 'pretty grim'," wrote Erik Nielsen, group chief economist at UniCredit, in a note to clients.

Overnight Asian stock trading was dampened by China’s blue-chip index which tumbled more than 3.3 percent.

Chinese data underscored worries of a cooling economy as profit growth at its industrial firms slowed for the fifth consecutive month in September due to ebbing sales of raw materials and manufactured goods.

Global financial markets have been hit by negative factors from an intensifying China-U.S. trade conflict to tensions in Europe over Italy's budget and tightening monetary policy.

Many indices are already in official correction territory amid heightened worries over corporate earnings and global growth.

"With the volatility of the last week or so, today’s stronger open to markets should not be seen as a sea change but more a pause for breath," said Edward Park, investment director at Brooks Macdonald.

Analysts have been downgrading their estimates for European earnings at the fastest pace since February 2016, and weak results from internet giants Amazon and Alphabet hurt U.S. stocks at the end of last week.

BOLSONARO WIN BOOSTS EMERGING STOCKS

Emerging markets stocks built on early gains to climb 0.7 percent in their first rise in five sessions after far-right candidate Jair Bolsonaro won the runoff in Brazil's presidential election.

Brazil-exposed stocks in Europe climbed on his win. Blackrock's Latin American Investment Trust London-listed shares gained 8.4 percent while a Germany-listed iShares MSCI Brazil ETF climbed 5.8 percent.

"Our initial assessment for the Bolsonaro administration is that it will have a pro-business stance, focused on enhancing the country's competitiveness," said UBS analysts.

Foreign exchange markets were relatively subdued with the dollar index leading, up 0.3 percent.

The euro fell on the Merkel news, down 0.2 percent at $1.1381. Sterling dipped 0.1 percent, near a two-month trough of $1.2775 before Britain’s annual budget due later on Monday.

Finance minister Philip Hammond is likely to urge his divided Conservative Party to get behind the government’s push for a Brexit deal, or put at risk a long-awaited easing of austerity.

In commodities, oil prices dipped as investors priced in growing worries about Chinese growth. U.S. crude fell 43 cents to $67.17 per barrel and Brent crude slid 44 cents to $77.18.

Reporting by Helen Reid Editing by Raissa Kasolowsky and Jon Boyle

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