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GLOBAL MARKETS-Shares rally, bond yields rise as China fuels trade deal hopes

April Joyner

* Italian 10-year bond yields hit record low

* Yields on U.S., German bonds rise as stocks advance

* Argentina peso recovers from tumble on plan to reprofile debt

* Gold, silver ease from highs (Updates to mid-afternoon in U.S. markets)

NEW YORK, Aug 29 (Reuters) - U.S. and European shares advanced on Thursday as China struck a hopeful tone on trade relations with the United States and as Italy appeared close to forming a new government and resolving its political crisis.

Wall Street stocks jumped more than 1% after China's commerce ministry said Beijing and Washington were discussing the next round of face-to-face talks scheduled for September. The comments spurred hopes for progress in the talks and boosted the Chinese yuan, which snapped a 10-day losing streak.

Stocks have been whipsawed over the past few weeks as trade rhetoric between the United States and China has ranged from combative to conciliatory. On Friday, China unveiled retaliatory tariffs on $75 billion of U.S. goods, and U.S. President Donald Trump said he would tack an additional 5% duty onto $550 billion of Chinese goods.

"If there's promise that they might be able to negotiate and that tariffs will not be implemented right away, that's good news," said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.

European shares ended more than 1% higher after Italy's president asked former Prime Minister Giuseppe Conte to return to head up a new coalition of the anti-establishment 5-Star Movement and the opposition centre-left Democratic Party.

The coalition is a step toward resolving a three-week political crisis triggered after League leader Matteo Salvini pulled his hard-right party out of its governing alliance with 5-Star. Italian stocks rose nearly 2% and the country's government bonds also rallied, with yields on 10-year bonds hitting a record low.

U.S. Treasury yields, however, moved off recent lows as stocks rose. Data showing second-quarter U.S. gross domestic product growth in line with consensus estimates and weak results at a $32 billion auction of seven-year government notes also bolstered bond yields.

Among currencies, Argentina's peso rebounded after sinking more than 3% earlier in the day on the country's plans to extend the maturities on some $100 billion of its debt. The peso was last up 0.14% at 57.86 per dollar.

On Wall Street, the Dow Jones Industrial Average rose 328.53 points, or 1.26%, to 26,364.63, the S&P 500 gained 37.07 points, or 1.28%, to 2,925.01 and the Nasdaq Composite added 116.32 points, or 1.48%, to 7,973.21.

The pan-European STOXX 600 index rose 1.04% and MSCI's gauge of stocks across the globe gained 0.93%.

Benchmark 10-year Treasury notes last fell 15/32 in price to yield 1.5164%, from 1.468% late on Wednesday.

The dollar index, tracking it against six major currencies, rose 0.29%, while the euro was down 0.21% to $1.1054.

The Japanese yen weakened 0.48% versus the greenback at 106.64 per dollar. Sterling was last trading at $1.2175, down 0.28% on the day.

In offshore trading, the Chinese yuan was last 0.33% higher at 7.1451 per dollar.

Among commodities, spot gold last fell 1.09% to trade at $1,522 per ounce. Silver also eased 1.04% to $18.14 an ounce after hitting its highest level in more than two years.

U.S. crude extended its gains from Wednesday on data showing a sharp fall in U.S. inventories, with the approach of Hurricane Dorian toward Florida also raising concerns that offshore producers may slow output if the storm passes into the Gulf of Mexico.

U.S. crude settled 1.67% higher at $56.71 a barrel, while Brent settled at $61.08 a barrel, up 0.98%. (Reporting by April Joyner; Additional reporting by Akanksha Rana in Bengaluru, Collin Eaton in Houston and Marc Jones in London; Editing by Bernadette Baum and Lisa Shumaker)