* China shares hit 21-month high on return from holiday
* Spain outperforms as Europe shares also rise
* Lira tumbles vs dollar as Turkey, U.S. suspend visa services
* Gold hits one-week high on North Korea tension
* Graphic: World FX rates in 2017 http://tmsnrt.rs/2egbfVh
LONDON, Oct 9 (Reuters) - World shares rose on Monday, with Chinese stocks hitting 21-month highs and Germany a record, while political uncertainty triggered big moves in sterling, the Turkish lira and Spanish debt.
European shares rose. The pan-European STOXX 600 index added 0.2 percent and Germany's DAX touched an all-time high after data showing industrial output far overshot forecasts.
Spanish shares outperformed the broader market and Spain's government bond yields fell as tensions between Spain and its wealthy region of Catalonia appeared to ease.
Hundreds of thousands demonstrated on Sunday against a proposed declaration of independence and Catalan leader Carles Puigdemont is under pressure to back away from declaring independence when he addresses the regional parliament on Tuesday.
"Some of the uncertainty has been reduced -- the tone from Puigdemont has become more conciliatory and (Spain's Prime Minister Mariano) Rajoy has also stepped back," said Peter Chatwell, head of euro rates strategy at Mizuho.
Spain's 10-year government bond yield was down 6.5 basis points at 1.65 percent. The IBEX stock index rose 0.8 percent, outperforming the rest of Europe.
On their first day of trade after a week-long holiday, Chinese blue-chip stocks touched their highest levels since late 2015, partly in a delayed reaction to a targeted cut in the amount of cash some banks must hold in reserve bank announced a week ago.
That outweighed data on Monday showing activity in China's service sector grew in September at its slowest since December 2015.
MSCI's broadest index of Asia-Pacific shares outside Japan reversed course as European trade began and were last down 0.1 percent, having rebounded by 1.7 percent last week.
An index of world stocks tracking shares in 46 countries, however, was up 0.1 percent, just shy of a record high .
Wall Street also looked set open higher later. E-mini futures on the S&P 500 were up 0.1 percent.
The S&P 500 fell on Friday after six days of gains following data that showed U.S. employment fell in September for the first time in seven years, although the jobless rate hit a more than 16 1/2-year low and wage growth accelerated.
"Wages aren't the sort of thing that pop up and dip back down again - this could the beginning of some decent wage growth, which is what the U.S. economy needs," said CMC Markets analyst David Madden, in London.
U.S. stocks are due to trade on Monday, although the bond market is closed for a holiday. Tokyo markets are also shut.
The dollar was down fractionally against a basket of major currencies. A slight dip against the Japanese yen on concerns North Korea was preparing a new missile test turned into a slight gain.
The yen was last down less that 0.1 percent at 112.66 per dollar. The Japanese currency had fallen as low as 113.44 per dollar last week. The euro dipped 0.1 percent to $1.1729 .
The Turkish lira fell as much as 2.5 percent against the dollar and Istanbul stocks fell 4 percent after the United States and Turkey cut back visa services in a sharp deterioration in relations.
A U.S. consulate employee was arrested last week on charges of links to U.S.-based cleric Fethullah Gulen, blamed for last year's failed coup. Washington condemned the arrest as baseless.
"Turkey's economy, especially the private sector, significantly relies on USD funding, the disruption of which can cause economic and financial disarray to Turkey" analysts at TD securities said in a note.
Sterling rose 0.6 percent to $1.3112 on reports British Prime Minister Theresa May, facing threats to oust her, might sack her foreign minister, Boris Johnson.
In government bond markets, Spain's 10-year yield hit a one-week low, narrowing the gap with German benchmarks,
Gold hit a one-week high as tension over North Korea saw some investors seek safety in the metal. It rose 0.4 percent to $1,279 an ounce.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.bi z / c m s / ? p a g e I d = l i v e m a r k e t s
(Additional reporting by Wayne Cole in Sydney,)