* MSCI world equity index up 0.2% to highest since Feb '18
* China's yuan reached 12-week high
* U.S.-China edge close to 'phase one' deal
* Recession fears recede as jobs data show U.S. economic
strength
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Tom Wilson
LONDON, Nov 4 (Reuters) - World shares touched a 21-month
high on Monday on signs that the United States and China could
soon put an end to a damaging trade war as well as indications
that the world may yet dodge an economic recession.
Beijing and Washington spoke on Friday of progress in talks
aimed at settling a trade dispute that has bruised the global
economy and repeatedly shaken financial markets, with U.S.
officials saying a deal could be signed this month. The MSCI world equity index .MIWD00000PUS , which tracks
shares in 47 countries, climbed 0.2% to its highest since
February 2018, with major European indexes following Asia
upwards.
The broader Euro STOXX 600 .STOXX rose 0.6%, with
Frankfurt's main index .GDAXI , seen as highly exposed to the
trade war, climbing 0.8% to reach its highest since June last
year. Wall Street futures ESc1 gained 0.4%.
The optimistic tone reached currency markets, too, as the
Chinese yuan CNH=EBS rose to a 12-week high versus the dollar.
Investors expect the world's two biggest economies to reach
a "phase one" trade deal, with U.S. President Donald Trump
hoping to sign an agreement with Chinese President Xi Jinping.
The key date in focus is Dec. 15, when new U.S. tariffs on
Chinese imports from toys to electronics are due to kick in.
Both sides have an interest in averting those tariffs, with
Trump in particular seen as aiming to reap political benefits
from sealing a deal ahead of the 2020 presidential election.
"It will be a convenient decision for President Trump to let
phase one be signed," said Alessia Berardi, senior economist at
Amundi. "This is a kind of low-hanging fruit to collect and is
very much possible."
Still, Berardi warned that intellectual property would be a
thornier issue and could yet complicate talks next year.
Earlier, the positive mood on trade had sent Asian stocks
surging, with MSCI's broadest index of Asia-Pacific shares
outside Japan .MIAPJ0000PUS up 1.2%.
Indexes in Hong Kong .HSI and Seoul .KS11 gained 1.7%
and 1.$% respectively, while mainland Chinese blue chips
.CSI300 added 0.7%.
Also emboldening investors was a sense that a global
recession, predicted by many economists and investors to hit
next year, was a diminishing risk.
On Friday, a better-than-expected U.S. jobs report added to
signs of economic resilience. Job growth slowed less than
expected in October, with hiring in the two months before that
better than previously estimated. "The macro environment is still resilient, stabilised and
maybe even showing signs of improvement - and that is a net
positive for risky assets," said Olivier Marciot, senior
portfolio manager at Unigestion.
Bond markets, too, suggested that the United States may have
dodged a slowdown. The three-month to 10-year Treasury yield
curve - a key warning sign of U.S. recession when inverted - is
rising again after staying in negative territory for long
periods since May.
And on the earnings front, U.S. results are for the third
straight quarter defying expectations for an annual aggregate
contraction.
"Expectations were low going into earnings, and things are
getting better than expected," Marciot said.
WAITING FOR LAGARDE
As the Chinese yuan strengthened, the euro trod water.
Investors were waiting for Christine Lagarde's first speech as
European Central Bank president.