* Shares recover on strong Chinese PMI numbers
* German bund yields rise after surprise SPD election
* Crude prices climb before possible OPEC cuts
* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
By Tommy Wilkes
LONDON, Dec 2 (Reuters) - Stock markets rebounded on Monday as decent manufacturing data in China and renewed optimism over a trade deal eroded some of the jitters which emerged among investors last week.
The recovery in Europe followed gains in Asia, where share prices again approached record highs as investors stuck with bets that a trade deal between the United States and China is imminent, something which has fueled the rally in asset prices in recent weeks.
Last week's decision by U.S. President Donald Trump to sign legislation backing protestors in Hong Kong initially rattled markets, with worries it will unravel progress made in talks between Beijing and Washington.
But investors are nonetheless sticking with the broad view that a further escalation in the trade war can be avoided.
The MSCI world equity index, which tracks shares in 47 countries, edged up 0.1 percent and was close to last week's highs.
In Europe, the Euro STOXX 600 rose 0.26 percent while the German DAX was 0.23 percent higher. French and British shares were also climbing.
Chinese data did much to help the mood after the Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) index rose to 51.8 in November from 51.7 in the previous month, marking the fastest expansion since December 2016.
"What we had in China on the weekend with the two PMIs being above expectation is clearly a good sign in terms of making the global stabilisation scenario more credible," said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners.
Savary noted that European manufacturing data had also posted an improvement, while euro zone inflation was higher than expected.
"Not only do we have signs of economic stabilisation, we also have a decreased risk of deflation. I am not sure if that means markets should be hitting record highs, a lot of positive news has been priced in," he added.
In Germany, the surprise election of new leftist leaders to the Social Democrats (SPD) threatened the ruling coalition, sparking a jump in German bond yields as markets bet it would ease the path towards fiscal expansion.
The 10-year German bond yield was last up 5 basis points at -0.302 percent, a two-week high. That helped spur a selloff across euro zone government bond markets.
U.S. Treasury yields were also notably higher, with the 10-year bond yield up by more than 7 basis points at a two-week high.
The buoyant mood among investors was also evident in the U.S. dollar, which has tended to perform well on hopes for a trade deal. It rallied to a six-month high of 109.73 yen , its strongest against the safe-haven currency since May.
Currency markets were largely quiet elsewhere, with the euro little changed at $1.1016.
Investors have long thought that the United States will avoid imposing an additional 15 percent tariff on about $156 billion of Chinese products on Dec. 15 after signing a deal with China.
But the two countries have been so far unable to bridge the gap over existing tariffs on Chinese goods, with Beijing demanding the scrapping of them as a part of any trade deal.
"It looks a bit difficult for two countries' leaders to shake hands and sign a deal this month. What is more likely is to essentially kick the can, with China buying more U.S. farm products while the U.S. postpones its next tariffs," said Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust Asset Management.
"Markets will consider such an arrangement as a de facto deal whether they officially sign it or not," he said.
Oil prices recovered slightly after a big slump on Friday on record high U.S. crude production. Expectations that OPEC and its allies are set to extend existing oil output cuts when they meet this week helped drive the rebound.
Brent crude futures rose 1.21 percent to $61.22 a barrel while U.S. West Texas Intermediate crude gained 0.85 percent to $56.02 per barrel.
Additional reporting by Hideyuki Sano in Tokyo and Sujata Rao in London; Editing by Kirsten Donovan