GLOBAL MARKETS-Shares rebound from Trump's shock stimulus talks cancellation

* Graphic: 2020 asset performance http://tmsnrt.rs/2yaDPgn
* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh
* Reuters Live Markets blog: LIVE/

By Elizabeth Howcroft
LONDON, Oct 7 (Reuters) - European shares rose on Wednesday,
as initial dismay at U.S. President Donald Trump's decision to
cancel fiscal stimulus negotiations with lawmakers in Washington
was replaced by optimism about an aid package after the U.S.
elections.
Trump broke off talks with Democrats in a tweet, saying that
negotiations will stop until after the Nov. 3 election, when he
promised a major stimulus bill if he wins. The news quickly rattled Wall Street but Asian investors
became less concerned overnight on the grounds that whoever wins
the election will still introduce a fiscal stimulus bill.
Asian stocks hit two-week highs and European shares, which
opened slightly in the red, quickly rose, helped by upbeat
earnings reports. The STOXX 600 was up 0.2% on the day by 0757 GMT and
London's FTSE 100 was up 0.1% .FTSE . MSCI world equity index .MIWD00000PUS , which tracks shares
in 49 countries and had climbed to a three-week high before the
stimulus talks were cancelled, was up 0.1%.
U.S. stocks were also set to rebound when Wall Street opens,
with S&P 500 futures up 0.6% ESc1 , helped by later tweets by
Trump where he called for more fiscal support.
"Even if a pre-election deal cannot be reached, Biden's
widening lead in the election polls is making it likelier that
more substantial stimulus can eventually be agreed on," UBS
strategists wrote in a note to clients.
"Indications of a more decisive election result may also
reduce investors' concerns about a protracted and contested
outcome," they added.
A poll on Monday showed Democrat Joe Biden with his widest
lead in a month, as a majority of Americans said Trump could
have avoided coronavirus. Deutsche Bank strategists also wrote that markets were
instead focusing on the prospect of more fiscal stimulus in the
case of a clean sweep Democratic victory.
"Further evidence that this election will result in a
definitive result will offset any short term stimulus
disappointment," wrote Deutsche Bank strategist Jim Reid.
Trump's tweets came shortly after U.S. Federal Reserve Chair
Jerome Powell reiterated warnings about the economic recovery,
saying that the U.S. economy could slip into a downward spiral
if the coronavirus is not controlled and growth sustained.
German industrial output fell unexpectedly in August,
indicating that the recovery from the coronavirus recession in
Europe's largest economy could be less powerful than hoped.
The dollar - which initially rose when the talks in
Washington were cancelled - fell as European markets opened on
Wednesday, down 0.1% against a basket of currencies at 93.705 at
0736 GMT =USD . Minutes from the Fed's September meeting will be published
at 1800 GMT.
Euro-dollar was up 0.2% at $1.1756 EUR=EBS , while the
Australian dollar, a liquid proxy for risk, was up 0.5% against
the U.S. dollar AUD=D3 .
The Australian government pledged billions in tax cuts and
measures to boost jobs on Tuesday, but traders say that the
Aussie faces downside risks as the Reserve Bank of Australia is
expected to cut rates in November. The pound was up 0.4% at $1.2919 GBP=D3 .
Brussels is gearing up to extend Brexit negotiations until
at least mid-November to avoid a no-deal scenario when Britain's
status-quo transition period with the European Union ends on
Dec. 31, sources said. Oil prices extended their decline. With West Texas
Intermediate crude oil futures down 48 cents at $40.18 a barrel
by 0748 GMT CLc1 . Gold was up 0.7% at 0748 GMT, at $1,890.91 per ounce XAU= .
The benchmark 10-year Bund yield was down by about 1 basis
point at 0.516% DE10YT=RR .

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