* Wall Street bounces back after selloff
* Oil up after big slide, but market still shaky
* European shares and bonds firm; focus on Italy and European Commission
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh (Updates to U.S. market open, changes byline, changes dateline to NEW YORK)
By April Joyner
NEW YORK, Nov 21 (Reuters) - World stock markets and oil prices climbed on Wednesday, with earnings and gains in tech stocks lifting shares on Wall Street, while the euro rose on hopes Italy and the European Commission would reach a compromise on a dispute over Italy's 2019 budget draft.
The recovery in U.S. tech and other momentum stocks boosted the benchmark S&P 500 stock index after it fell 3.5 percent over the previous two sessions. Strong earnings from Foot Locker Inc and Gap Inc boosted consumer discretionary stocks. The small-cap Russell 2000 index rallied nearly 2 percent.
The European STOXX 600 index also rose 1.1 percent as beaten-down stocks in the tech and banking sectors recovered.
Wednesday's stock market activity showed signs of investors recovering their risk appetite, albeit in thin volume in U.S. markets going into Thursday's Thanksgiving holiday, said Robert Phipps, director at Per Stirling Capital Management in Austin, Texas.
"There's outperformance in tech stock and small caps. That's normally viewed as a risk-on move," Phipps said. "But volume equals validity, and I don't expect to get lots of volume."
U.S. stock and bond markets will be closed on Thursday and open for a half-day on Friday.
MSCI's gauge of stocks across the globe gained 0.78 percent.
The Dow Jones Industrial Average rose 159.93 points, or 0.65 percent, to 24,625.57, the S&P 500 gained 25.65 points, or 0.97 percent, to 2,667.54 and the Nasdaq Composite added 101.08 points, or 1.46 percent, to 7,009.91.
Also reflecting positive investor sentiment, the euro rose on hopes that the Italian budget dispute would be resolved even as the European Commission took its first step toward disciplining Italy over its deficit.
The dollar index, which tracks the greenback against a basket of six major currencies, slipped 0.2 percent after having advanced in Tuesday's risk-off session.
Italian bonds rallied, pushing two-year yields down as much as 20 basis points.
Oil prices climbed after U.S. government data showed strong demand for gasoline and diesel, though gains were limited by concern over rising crude supply. U.S. crude prices had sunk to one-year lows after Tuesday's selloff.
U.S. crude surged 4.25 percent to $55.70 per barrel. Brent crude futures rose to $64.02 a barrel, a 2.4 percent gain.
Benchmark 10-year notes last fell 10/32 in price to yield 3.0846 percent, from 3.048 percent late on Tuesday.
Despite the improved sentiment, market participants have been preparing for a loss of momentum in global growth as China takes a hit from Washington's trade tariffs and the United States comes off the high of President Donald Trump's tax cuts.
Jonas David, a strategist at UBS Global Wealth Management, said a G20 meeting between Trump and Chinese President Xi Jinping at the end of the month could determine the course of bond markets and euro/dollar rates.
"If we don't get a relaxation of trade tensions after the G20, markets may start questioning the prospect of another Fed rate hike in December," he said.
Reporting by Sujata Rao; additional reporting Shinichi Saoshiro in Tokyo; Editing by Bernadette Baum