November 7, 2019 / 1:38 PM / 11 days ago

GLOBAL MARKETS-U.S.-China trade deal hopes restart stocks rally

* China says trade deal would see tariffs removed in phases

* European stocks at a more than 4-year high

* Asian markets hit 6-month high with late rally

* Wall Street to test new record

* Safe haven bonds sag as market optimism returns

* Dollar regains territory vs yen, Aussie dollar outperforms

* Pound knocked by surprise calls for cuts at BoE

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

By Marc Jones

LONDON, Nov 7 (Reuters) - Europe's share markets hit a more than four-year peak and bond yields shifted higher on Thursday, as Beijing signalled a "phase 1" trade deal with the United States was close to being sealed.

Asia had been quiet overnight, but things sparked just before Europe opened when China's commerce ministry said the world's two economic giants were working on a deal that would roll back trade tariffs in different stages.

Cue optimism. The pan-European STOXX 600 index rose 0.4% to its highest since July 2015, led by the export-heavy DAX in Frankfurt despite worse-than-expected German industrial output data.

Government bond yields, which move inversely to price, rose too. Benchmark Bund yields were heading towards their highest in more than three months, while the dollar took ground from the safe-haven yen in the currency markets.

"Everything is moving together for now on this trade deal news," said Saxo Bank's head of FX strategy, John Hardy. "The question is, how much was already baked into the cake and can we really see more specifics?" he added.

Among the top gainers across European sub-sectors were automakers and miners, while defensive plays such as telecoms and utilities fell, which all pointed to higher risk appetite.

E-Mini futures for Wall Street's S&P 500, which has already reached a record high this week, were a solid 0.4% higher too.

Asia barely budged for most of its day but saw a late rally, which meant MSCI's broadest index of Asia-Pacific shares outside Japan squeezed in a six-month high.

Japan's Nikkei had dithered either side of flat in very quiet trade, having touched a 13-month top on Wednesday. South Korean stocks stalled after hitting their highest since May, while Shanghai blue chips eked out a 0.2% rise.

Reuters had reported on Wednesday that a meeting between U.S. President Donald Trump and Chinese President Xi Jinping to sign the interim trade deal could be delayed until December as discussions continue over terms and venue.

Among various suggestions was to sign a deal after a scheduled NATO meeting in London in early December.

"One could take the view that by not committing to meet the original deadline it gives more time for a somewhat more comprehensive agreement to be thrashed out," said Ray Attrill, head of FX strategy at National Australia Bank.

AUSSIE, AUSSIE, AUSSIE

As the risk rally resumed though U.S. bonds saw losses build again. Yields on benchmark U.S. 10-year notes rose 7 basis points in European trading alone to reach a two-month top of 1.88%.

That kept the dollar in check at 109.15 yen from a weekly high of 109.24 and a smidgen lower on a basket of currencies at 97.965.

Australia's China-sensitive dollar hit a near four-month high, the euro was trying to sustain a bounce at $1.1080 and the pound toppled back in surprise after two Bank of England officials voted to cut UK interest rates for the first time since 2016.

So far the BoE has resisted following the United States Federal Reserve and the European Central Bank in cutting its main interest rate in response to Brexit challenges and a global slowdown caused by the U.S.-China trade war.

"If global growth failed to stabilise or if Brexit uncertainties remained entrenched, monetary policy might need to reinforce the expected recovery in UK GDP growth and inflation," the BoE said in a summary of its policy discussion.

In commodities, copper got its customary lift from the China optimism - China is the biggest buyer of the metal - and oil clawed higher after taking a hit on Wednesday from a surprisingly large build in U.S. crude inventories.

U.S. crude was 57 cents higher at $56.92 a barrel, while Brent crude rose 50 cents to $62.23. Spot gold inched back towards $1,480 per ounce, within its recent tight trading ranges.

Additional reporting by Wayne Cole in Sydney; Editing by Gareth Jones

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