GLOBAL MARKETS-Brexit and China tensions weigh on shares as pound gets hit

(Recasts, adds European open, updates prices)
* World shares ease after hitting record peak
* Sterling hit as investors get jittery over Brexit
* Trump preparing sanctions on some Chinese officials
* Dollar index rises, EU bond yields fall, oil down
* 2020 asset performance http://tmsnrt.rs/2yaDPgn
* World FX rates in 2020 http://tmsnrt.rs/2egbfVh
*

By Danilo Masoni and Swati Pandey
MILAN/SYDNEY, Dec 7 (Reuters) - World shares and other risk
assets fell on Monday as growing risks of a no-deal Brexit that
hit the pound hard and fresh Sino-U.S. tensions offset bets over
more fiscal and central bank stimulus in Europe and the United
States.
After surging to a fresh all-time high earlier on Monday,
the MSCI world equity index .MIWD00000PUS , which tracks shares
in 49 countries, turned lower to fall 0.3% by 0919 GMT.
European shares fell 0.6% in early trade following losses in
Asia on a Reuters report that Washington was preparing sanctions
on Chinese officials over their alleged role in Beijing's
disqualification of elected opposition legislators in Hong Kong.
E-Mini futures for the S&P 500 ESc1 slipped 0.5%.
The main source of angst in Europe was Brexit trade talks
which hung in the balance as London and Brussels tried to bridge
significant differences in a last-ditch attempt to avoid a
disorderly exit by year end. Other potentially market moving events were also eyed,
starting with a EU summit from Thursday to break an impasse over
a 1.8 trillion-euro Coronavirus aid package, as well as the last
ECB policy meeting of the year on the same day.
"To say that this week will be a crunch week with lots of
high risk events with potentially binary outcomes is an
understatement," said AFS Group analyst Arne Petimezas.
"While the week might be packed with high risk events,
markets are so high on central bank liquidity and central bank
puts that no one seems to really care," he added.
World shares had initially risen on Monday on hopes of a
faster global recovery as coronavirus vaccines get rolled out,
starting this week in Britain.
Hopes the vaccines will help curb the pandemic, which has so
far killed more than 1.5 million people globally, sent shares
soaring in recent weeks.
On top of that, expectations of a U.S. stimulus aid package
gathered pace after weak payrolls data on Friday, following
months of deadlocked negotiations.
A bipartisan group of Democrats and Republicans proposed a
compromise 900 million package that leaders on both sides appear
open to agreeing to. In currencies, the pound was under heavy pressure and risk
currencies fell as the lack of progress in Brexit talks dented
hopes that UK and EU negotiators will be able to strike a trade
deal before a transition period ends later this month.
Sterling fell 1.2% versus the dollar to $1.3263 GBP=D3 and
was down around 1.1% versus the euro at 0.9121 EURGBP=D3 ,
while implied sterling volatility gauges for overnight and
one-week maturities jumped to over 17% and 14% respectively as
traders braced for more swings.
Irish Prime Minister Micheal Martin said on Sunday the
chances of a deal were 50-50, while bank JPMorgan said odds of a
no-trade deal exit had risen to one third from 20%.
"A deal can still be done but with the probabilities near
50:50 it is little wonder that option demand seems biased
towards downside strikes," said Jeremy Stretch, head of G10 FX
Strategy at CIBC Capital Markets.
British Prime Minister Boris Johnson and European Commission
President Ursula von der Leyen will review the situation on
Monday evening. Meantime, the U.S. dollar rose 0.4% to 91.19 against a
basket of currencies USD= , after hitting a 2-1/2-year low last
week.
Brexit tensions also lifted European bond prices, sending
yields lower. The yield on Germany's 10-year Bund dropped to a
one week low of -0.58%, also weighed down by expectations the
ECB would announce further stimulus later this week.
In commodities, oil prices slipped from their highest levels
since March as a continued surge in coronavirus cases globally
forced a series of renewed lockdowns, including strict new
measures in Southern California. O/R
U.S. crude CLc1 fell 1.7% to $45.46 per barrel and Brent
LCOc1 was down 1.5% to $48.49. Brent has lost about a quarter
of its value so far this year.