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* Eyes on Fed minutes, Jackson Hole meeting for rate outlook
* Renault, Fiat tie-up hopes boost shares
* U.S. President Trump says he had to 'take China on'
* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr (Updates prices, adds U.S. futures)
LONDON, Aug 21 (Reuters) - European stocks rallied on Wednesday as hopes for more monetary and fiscal stimulus helped assuage worries about global recession, political turmoil in Italy and endless trade wars.
Traders are waiting for the Federal Reserve's annual Jackson Hole symposium later this week and a Group of Seven summit this weekend for clues on what steps policymakers will take to boost economic growth.
Much depends on what the Fed does with U.S. interest rates, making markets hyper-sensitive to the minutes - due later on Wednesday - of its last meeting.
"People are looking ahead to Jackson Hole later this week and the message that 1/8Fed Chairman 3/8 Jerome Powell may or may not give us on the direction of monetary policy. That is the highlight of the week and we are waiting with bated breath," said Andrew Milligan, head of global strategy at Aberdeen Standard Investments.
Futures are fully priced for a quarter-point cut in rates next month and cuts of more than 100 basis points by the end of next year.
Morgan Stanley economist Ellen Zentner advised clients to watch for the use of the word "somewhat" when Powell describes future policy.
"Acknowledgment that downside risks have increased with no characterisation of 'somewhat' could be taken as confirmation that it is likely the Fed makes a larger cut in September," Zentner wrote in a note.
With so much riding on the Fed, investors were cautious and volumes subdued, but gains extended later in the session. The Euro STOXX 600 was up 1.1% to its highest since early August, with Italy outperforming after a rout yesterday following the resignation of Italian Prime Minister Giuseppe Conte.
Shares in Milan-listed Fiat Chrysler climbed 4.0% after Italian media reported that talks between Fiat and Renault never stopped. That put the STOXX 600 Autos Index on track for its best day in a month. France's CAC 40 Index was set for its best day since Aug. 8.
GEA Group, a German food-processing-machinery company, and outsourcing group Capita gained more than 5% after Goldman Sachs upgraded its rating on the stocks.
In the U.S., stock index futures pointed to a stronger opening, with Dow e-minis up 0.65% and S&P 500 e-minis 0.73% higher.
Upbeat earnings reports from retailers Lowe's Cos Inc and Target Corp reflected robust consumer demand, helping ease some concern about slowing economic growth.
President Donald Trump showed no signs of backing down in his tussle with China, declaring on Tuesday a confrontation was necessary even if it hurt the U.S. economy in the short term.
Shortly afterward, the U.S. government approved an $8 billion sale of Lockheed Martin F-16 fighter jets to Taiwan, a move sure to draw Beijing's ire and further dim prospects for a trade deal.
Political turmoil in Italy, Britain and Hong Kong has also heightened uncertainties.
Italian bond yields steadied after falling on Tuesday, as Italian President Sergio Mattarella began two days of talks that will lead either to formation of the country's 67th government since World War Two or to early elections.
Germany sold 30-year bonds with a negative yield for the first time at an auction on Wednesday, a milestone for a fixed-income market where the entire curve now yields less than zero. .
MORE STIMULUS Alarm bells started ringing last week when yields on U.S. 10-year notes fell below two-year yields for the first time since 2007, an inversion that has preceded previous recessions. That was enough to prompt Trump's administration to look for ways to stimulate the U.S. economy.
In addition, the central banks of the euro zone, Australia and China are all expected to further loosen monetary policy this year. Germany is considering fiscal stimulus.
Those prospects have driven yields lower. Benchmark U.S.10-year Treasury yields stood at 1.57% on Wednesday, down from a high of 1.625% on Monday.
Currency markets were mostly subdued. The euro weakened to $1.1097. The dollar, measured against a basket of currencies, rose 0.1% to 98.228.
Sterling was last down 0.4% at $1.2126 and 0.4% lower versus the euro at 91.52 pence.
In commodities markets, U.S. crude rose 72 cents to$56.90 per barrel. Brent added 1.7% to $61.07.
Spot gold was weaker at $1,498.15 an ounce. (Additional reporting by Swati Pandey and Wayne Cole in Sydney; editing by Larry King )