* U.S. optimism over fiscal deal boosts markets
* European shares climb 0.8 pct, U.S. stocks set to gain
* Euro gains vs dollar, dollar up vs yen
* Oil prices edge up, gold recovers
LONDON, Nov 29 (Reuters) - World equities hit a three-week
high and commodities gained on Thursday as optimism grew that
U.S. political leaders would eventually reach a deal to avoid a
fiscal crisis which threatens to derail growth in the world's
biggest economy.
U.S. stock index futures also pointed to further gains
helped by data showing the economy grew faster than initially
thought in the third quarter.
The "fiscal cliff" - automatic spending cuts and tax
increases early in 2013 unless Congress agrees an alternative -
is the biggest risk facing global markets in the final weeks of
the year after a deal to help Greece was done earlier this week.
"We are moving towards a phase of gradual improvement thanks
to the likely resolution of the 'fiscal cliff' issue in the
U.S., a bottoming out of the Chinese economy and the
stabilisation of the euro zone," said Giordano Lombardo, chief
investment officer at Pioneer Investments.
Good demand at an Italian bond sale, where yields fell to
their lowest level in two years, added to signs that the euro
zone crisis had begun to ease.
The growing optimism spread across world share markets,
sending the MSCI global equities index up 0.6
percent to 330.74 points, its highest level since Nov. 7.
In Europe the FTSE Eurofirst 300 index rose 0.8
percent with gains of between 0.7 and 1.0 percent posted by
London's FTSE 100, Paris's CAC-40 and
Frankfurt's DAX.
However, traders said that share markets were likely to
remain nervous until a deal was done in Washington.
"One minute the portents for a deal on the fiscal cliff are
negative, the next minute they are positive. This is likely to
be the pattern all the way up to the deadline on Jan. 1," said
Mike Mason, a senior trader at Sucden Financial Private Clients.
"Equities are sure to remain volatile and trading subdued
until there is any concrete outcome to these negotiations,"
Mason said.
U.S. Treasury Secretary Tim Geithner is due to meet House
and Senate leaders from both parties on Thursday to keep up
pressure for a deal with less than a month left to reach a
compromise.
RISK FLOWS CHANGE
As investors returned to riskier assets, the other side of
the coin was a retreat from safe-haven German government bonds,
pushing benchmark 10-year debt yields up two basis points to
1.39 percent
The better tone allowed Italy to auction successfully six
billion euros ($7.75 billion) of new 5- and 10- year debt, which
was expected to complete its funding needs for the year. The
yield on the 10-year bond was 4.45 percent, the
lowest since November 2010.
Spain also announced it would sell some more bonds at an
auction on Dec. 5, although it has completed raising all the
money it needs for this year.
Italian and Spanish debt have benefited in recent months
from the European Central Bank's promise to buy sovereign debt
if countries ask for aid first. Although that has not happened
yet, the prospect of a central bank backstop has made investors
reluctant to sell and has pushed them back into those markets.
In the secondary market, 10-year Italian yields
were down 6.8 basis points at 4.52 percent, having
reached lows of 4.49 percent before the auction. Five-year
Italian yields fell 2.8 bps to 3.25 percent.
The fall in Italian and Spanish yields helped to lift the
euro against the dollar by 0.35 percent to $1.2997, with
the hopes for a U.S. fiscal deal adding to support for the
common currency.
The dollar, which had pulled back against the yen in
a correction from a 7-1/2 month high, edged up 0.1 percent to
about 82.10 yen.
Commodity markets also got some support from the U.S. fiscal
deal hopes. Crude oil futures rose $1.07 to $87.56 a
barrel, and Brent climbed $1.15 to $110.66 a barrel.
Spot gold was up 0.2 percent at $1,723.51 an ounce
although this followed a 1.3 percent tumble on Wednesday, its
biggest daily decline in nearly four weeks.
"Gold is being pulled higher on this prevailing optimism
over the fiscal cliff," said Ross Norman, chief executive of
bullion dealer Sharps Pixley.