* MSCI world equity index up 0.4%
* Wall Street futures up 0.4-0.6%
* Sterling holds onto gains after 2% jump
* U.S.-China negotiations “very, very good” - Trump
* Oil soars after explosion on Iranian oil tanker
* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
By Tom Wilson
LONDON, Oct 11 (Reuters) - World shares on Friday basked in optimism for a detente in the U.S.-China trade war and hopes that Britain was moving closer to a smooth exit from the European Union.
MSCI world equity index, which tracks shares in 47 countries, gained 0.4% to head towards its first weekly gain in four weeks. The broader Euro STOXX 600 also jumped 0.6%, led by a 1.1% gain for the main index in Frankfurt
Asian shares had rallied earlier, with an index of Asia-Pacific shares outside Japan climbing 1.3%. The positive mood was set to spread to the U.S., too, where Wall Street futures gauges were up between 0.4%-0.6%.
The improvement in appetite for riskier bets came after U.S. President Donald Trump on Thursday called the first day of trade talks with China in over two months “very, very good.”
The talks between U.S. and Chinese negotiators fed hopes that the two sides could dial down the 15-month trade war that has upset financial markets and supply chains across the world, and delay a U.S. tariff hike scheduled for next week.
Trump reiterated plans to meet China’s Vice Premier Liu He on Friday at the White House.
Expectations of progress on Thursday had pushed up U.S. markets, with Wall Street gaining around 0.6%.
Yet investors said markets were hoping for, at best, a deal limited in scope, and they noted that sunny rhetoric had in the past failed to translate into more meaningful moves.
“I would caution that we have been here before, where we have seen positive talk,” said Mike Bell, global market strategist at J.P. Morgan Asset Management.
“It’s possible they will be able to do a smaller deal around tariffs, where there is some room for movement.”
Hopes of progress in the trade war buoyed riskier currencies and pinned down the dollar. The Chinese yuan traded at 7.0941 per dollar, its strongest since Sept. 23.
Against a basket of currencies the greenback was a touch softer at 98.655
Signs of progress in Brexit, the other long-running geopolitical saga stressing out the markets, also emboldened investors.
After meeting British Prime Minister Boris Johnson for talks, Irish Prime Minister Leo Varadkar said on Thursday that a deal to let Britain leave the European Union in an orderly fashion could be sealed by the end of the month.
Varadkar called the talks “constructive,” while the two leaders said in a joint statement that they could “see a pathway to a possible deal”.
But it remained unclear what the pair agreed on.
Sterling held onto its gains after soaring 2% a day earlier, its largest daily percentage gain in seven months, to trade little changed at $1.2437.
But with Britain due to leave the world’s biggest trading bloc on Oct. 31, the fate of Brexit is still in the balance. Market players said investors remained skittish. Moves in sterling reflected a tendency to jump on any signs of progress.
“We are moving to a glimmer of hope, rather than strong expectation that things will get done,” Tim Drayson, head of economics at Legal & General Investment Management.
Yet Drayson said that any deal struck between Dublin and London would then face the hurdle of the British parliament, even after securing agreement from the European Union.
“I think the odds are that we don’t reach an agreement, but I’m not expecting a crash out on October 31.”
Irish government bonds rallied, outperforming their euro zone peers, after Varadkar’s comments. Stocks in Dublin jumped 1.8%, to hit their highest in 2-1/2 months.
“We still think that markets are probably underpricing the likelihood of a hard Brexit scenario,” said Salman Baig, a cross-asset investment manager at Unigestion.
In commodities, oil prices jumped by 2% after Iranian news agencies said a state-owned oil tanker was struck by two missiles in the Red Sea near Saudi Arabia, raising the prospect of supply disruptions from a crucial producing region.
Global benchmark Brent crude was up around 2.1% at $60.36 per barrel. For Reuters Live Markets blog on European and UK stock markets, please click on: (Reporting by Tom Wilson; Editing by Hugh Lawson)