* Italian bank shares jump 5 percent on deficit cut hopes
* Pound up vs dollar after Brexit agreement
* Wall Street opens higher on retail bounce
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh (Adds Wall Street open; changes dateline, previous NEW YORK)
By Hilary Russ
NEW YORK, Nov 26 (Reuters) - U.S. stocks rose on Monday, fueled by gains in retailer shares during a prime holiday shopping period, while European stocks rallied after signs that Italy was preparing to rework the spending plans that have fueled tensions with the European Union.
Oil bounced back after its own "black" Friday, adding to a risk-on sentiment, and the pound rose after Britain's Brexit agreement won approval from European leaders.
Italy's governing coalition may reduce next year's budget deficit target to as low as 2 percent of gross domestic product to avoid disciplinary action from the European Commission, Reuters reported.
Currently, Italy's deficit target is 2.4 percent, far higher than the 0.8 percent set by the previous government. The country's budget has put it in dispute with the Commission and alarmed the euro zone.
The prospect of a lower deficit sent Italy's banks index up nearly 5 percent on Monday, toward its strongest day since June. An equally strong rally in bond markets sent Italian borrowing costs to their lowest since September.
The euro was down 0.03 percent to $1.1337, while sterling was last trading at $1.2814, up 0.02 percent on the day.
The dollar index rose 0.03 percent.
Analysts remain cautious that the Brexit deal faces stiff opposition within the British Parliament, which is expected to vote on the agreement in around two weeks.
"During the next two weeks the pound will likely trade with increased volatility," said Lee Hardman, a currency analyst at MUFG.
Wall Street rose as retailers anticipated $7.8 billion in sales on the largest online shopping day of the year, with shoppers who missed out on Black Friday deals expected to flock to the internet for Cyber Monday.
Technology stocks were also higher after taking a beating last week.
"We had a pretty miserable week in terms of the equity markets and sometimes you get a relief rally. Markets could be bouncing a little bit based on that," said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.
The Dow Jones Industrial Average rose 262.62 points, or 1.08 percent, to 24,548.57, the S&P 500 gained 31.12 points, or 1.18 percent, to 2,663.68 and the Nasdaq Composite added 104.17 points, or 1.5 percent, to 7,043.16.
The pan-European STOXX 600 index rose 1.27 percent and MSCI's gauge of stocks across the globe shed 0.48 percent.
On Friday, the S&P 500 recorded its lowest close in six months, down more than 10 percent from September's peaks, pushing it back into "correction" territory.
Oil rose above $60 a barrel on Monday, recovering some of the previous session's near-7 percent fall, although uncertainty over global economic growth limited the gains.
U.S. crude rose 2.8 percent to $51.83 per barrel and Brent was last at $60.77, up 3.35 percent on the day. (Additional reporting by Marc Jones, Amanda Cooper and Tom Finn in London; Karen Brettell in New York; Amy Caren Daniel in Bengaluru; Editing by Dan Grebler)