(Adds reference to Hong Kong extradition bill)
* European shares up 1.1%, world stocks up 0.4%
* Pound rebounds after PM Johnson setback in parliament
* Italy bond yields hit new lows on prospect of new govt
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Danilo Masoni
MILAN, Sept 4 (Reuters) - Britain's pound bounced from
three-year lows on Wednesday after a parliamentary vote raised
the prospect of another delay to Brexit while an easing of
worries about political risk in Italy also helped push world
stocks higher.
Global stocks .MIWD00000PUS rose 0.4% by 0821 GMT, as
Europe .STOXX rallied 1.1% and after a positive session in
Asia following a report showing that growth in China's service
sector accelerated despite broader economic headwinds.
Reports that Hong Kong will announce the withdrawal of an
extradition bill that triggered months of unrest, throwing the
Chinese-ruled city into its worst crisis in decades, also caused
relief. British lawmakers defeated Boris Johnson on Tuesday in a bid
to prevent him taking Britain out of the European Union without
a divorce agreement, prompting the prime minister to announce
that he would immediately push for a snap election. On Wednesday they will seek to pass a law forcing Johnson to
ask the European Union to delay Brexit until Jan. 31 unless he
has an exit deal approved by parliament beforehand.
UK developments lifted the pound 0.56% to $1.2155 GBP=D3
after sliding on Tuesday to its lowest since October 2016.
"The road from here is likely to be very tricky, especially
if PM Boris Johnson takes the path towards a snap election,"
said Hussein Sayed, Chief Market Strategist at FXTM.
"However, Mr. Johnson needs at least two-thirds of MPs to
vote in favour of one, and so far, the Labour party doesn't seem
willing to take this risk. If the opposition party manages to
get Brexit delayed in the outcome of no deal, we can see
sterling recover further from here," he added.
Elsewhere in currency markets, the dollar index .DXY
against a basket of six major currencies stood at 98.803 after
rising overnight to 99.370, its highest level since May 2017.
The index lost ground on Tuesday after data showed the U.S.
manufacturing sector contracted in August for the first time
since 2016, a reading that in turn has cemented expectations of
further policy easing by the Federal Reserve.
The euro rose to $1.0987 EUR= after sliding to a 28-month
low of $1.0926 overnight as investors braced for a potential
interest rate cut by the European Central Bank next week.
ITALIAN YIELDS AT NEW LOWS
In Italy, members of the anti-establishment 5-Star Movement
backed a proposed coalition with the centre-left Democratic
Party on Tuesday, opening the way for a new government to take
office in the coming days.
As a result 10-year Italian government bond yields
IT10YT=RR hit 0.803%, a new record low, while Italian banks
.FTIT8300 , another proxy for political risk in the country,
rallied 2%.
"The next hurdle for the government will be the confidence
vote in Parliament. But at the moment risks appear limited,"
said Giuseppe Sersale, fund manager at Anthilia Capital.
Political concerns and expectations of further easing
measures by central banks have been squeezing bond yields
globally but the return of risk appetite on Wednesday on the
back of political developments in Europe and upbeat economic
data from China triggered a rebound.
Yields on the safe-haven 10-year German Bund DE10YT=RR
rose to 0.676% after falling to a fresh record low on Tuesday,
while the yield on the 10-year U.S. Treasury US10YT=RR rose to
1.489% after hitting its lowest since July 2016 in the previous
session in light of the weak ISM U.S. factories reading.
In commodities, oil prices recovered some ground, helped by
the positive China data and having touched their lowest in close
to a month during the previous session on fears over the
weakening global economy. O/R
Brent crude LCOc1 was up 22 cents at $58.48 a barrel,
while U.S. West Texas Intermediate futures CLc1 gained 31
cents at $54.25 at barrel.
London copper prices rebounded from a two-year low and gold
prices steadied. MET/L GOL/
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