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* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
* FTSE hits all time high to lead European stocks
* Oil jumps over 2 percent as rally resumes
* Germany, French inflation lifts euro zone bond yields
By Marc Jones
LONDON, Jan 3 (Reuters) - Upbeat data from China helped lift global markets as 2017 trading started in earnest on Tuesday, with the dollar notching its biggest gain in three weeks, oil on a tear and European stocks setting a one-year high.
Base metal prices and bond yields also advanced, as the better-than-expected factory growth in China dovetailed with higher inflation data in Europe to give investors a solid start to the new year.
Much of Europe had been open on Monday but it was the first day back for its biggest stock market, Britain's FTSE 100 , and it wasted no time in hitting a new record high of 7,196 points with a 0.7 gain.
Germany's DAX and France's CAC 40 climbed too and among individual stock movers, Italian banks were back amongst the top risers, with newly-merged Banco BPM up 4.6 percent on its second day of trading.
Commodity-linked stocks jumped 1.3 percent as oil and metals prices cheered the China data that had showed output from the country's giant manufacturing sector reaching a near six-year high.
It bolstered the 'reflation' theme that dominated the latter stages of 2016 and helped get currency and bond markets back in their pre-break rhythm after a mixed recent run.
The U.S. dollar racked up its biggest rise in almost three weeks against a basket of the world's other major currencies to leave it just 1 percent off December's 14-year high.
Benchmark European government bond yields also tacked 5-8 basis points higher as the first inflation readings out Germany and in France pointed to a higher euro zone figure which is due on Wednesday.
Long-term inflation expectations in the euro zone, measured by the five-year, five-year forward rate, are near their highest levels in more than a year and close to the ECB's near 2 percent target, as the central bank prepares to pare back the pace of its money-printing scheme.
"Until just a few weeks ago, the general consensus was that upside inflation risks were very limited however... the inflation rate scheduled to be published today is likely to reveal a significant uplift," said DZ Bank strategist Birgit Figge.
In commodities, oil prices jumped over 2 percent in Europe as the China data fed into a market that is being buoyed by hopes a deal including OPEC and non-OPEC producer countries will drain the recent global supply glut.
Oil was the world's best-performing major asset class in 2016, with a gain of around 50 percent and global benchmark Brent was up 2.7 percent at $58.31 by 0945 GMT as U.S. crude topped $55 a barrel.
"Markets will be looking for anecdotal evidence for production cuts," Ric Spooner, chief market analyst at CMC Markets said.
"The most likely scenario is OPEC and non-OPEC member countries will be committed to the deal, especially in early stages."
Overnight in Asia, MSCI's broadest index of Asia-Pacific shares rose 0.6 percent as most regional markets reopened after the New Year holiday although Japan's Nikkei was still closed.
Australian shares were the best performers in the region, closing up 1.2 percent. Hong Kong's Hang Seng rose 0.7 percent while in China, both the CSI 300 index and the Shanghai Composite climbed 1 percent.
China was Asia's worst performing major stock market in 2016 with a 11.3 percent loss in its worst year in five.
"A year ago, the Chinese markets kept everyone on their toes," said Jingyi Pan, market strategist at IG in Singapore, said following the China data referring to market turmoil that engulfed global investors last January.
"I don't think that we will see a repeat given that the global economy has a better foothold compared to a year ago," Pan said.
The positive Chinese news also lifted the Australian dollar, which added 0.6 percent to $0.7230, while gold sagged, with the precious metal dropping 0.3 percent to $1,148 an ounce.
Back in Europe, the pick ups in Germany and French inflation came on the heels of data on Monday showing manufacturers ramped up activity at the fastest pace in more than five years in December.
The positive numbers failed to shake the euro out of its doldrums, however, with the common currency slipping 0.3 percent to $1.0426.
Investors were also keeping an eye on the Chinese yuan after the central bank nearly doubled the number of foreign currencies in a basket used to set the renminbi's value.
Starting on Jan. 1, the number of currencies in the CFETS basket increased to 24 from 13, with new entrants including the Korean won, the South African rand and the Mexican peso. [nL4N1EO2II
The country's foreign exchange regulator also said it would step up scrutiny of individuals' foreign currency purchases and strengthen punishment for illegal outflows, although the $50,000 annual individual quota will remain unchanged.
The renminbi posted its biggest annual loss since 1994 last year, with the dollar up almost 7 percent versus the Chinese currency.
In its first fix since the changes, the Chinese central bank set the official yuan midpoint at 6.9498 per dollar on Tuesday, compared with the previous close of 6.9467.
For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
MSCI world equity index, which tracks shares in 46 countries,
MSCI's main European Index
European stocks or the broader Euro STOXX 600
U.S. crude oil, Brent crude futures
German Bund futures
The dollar against a basket of six major currencies, (weighted geometric mean of the dollar's value compared with 6 other major currencies which are: the euro at 57.6 percent weight, Japanese yen 13.6 percent, Pound sterling 11.9 percent, Canadian dollar 9.1 percent weight, Swedish krona 4.2 percent and Swiss franc 3.6 percent. (Additional reporting by John Geddie and Christopher Johnson in London; Editing by Raissa Kasolowsky)