* Trump says trade talks underway with China, could act on Huawei
* Asia, Europe stocks push higher, Wall Street futures up
* Pound rises off 20-mth low as British PM faces party challenge
* U.S. CPI in line with expectations
* Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh
By Marc Jones
LONDON, Dec 12 (Reuters) - Stock markets rallied on Wednesday as U.S. President Donald Trump sounded upbeat about doing a trade deal with China, while sterling jumped off 20-month lows as Prime Minister Theresa May vowed to fight a challenge to her leadership.
Reports that Italy's government had bowed to pressure to scale back its spending plans put a spring in the euro's step and Wall Street was expected to open strongly due to the trade signals. .N
In an interview with Reuters, Trump said talks were taking place with Beijing by phone and he would not raise tariffs on Chinese imports until he knew whether the two sides would reach a deal. also said he would intervene in the Justice Department's case against a top executive at China's Huawei Technologies HWT.UL if it served national security interests or helped to close a trade deal. Canadian court granted bail on Tuesday to Huawei's chief financial officer in a move that could help placate Chinese officials angered by her arrest. news was enough to prompt a global bounce in sentiment and MSCI's broadest index of world stocks .MIWD00000PUS advanced nearly 0.7 percent.
Japan's Nikkei .N225 had led Asia with a jump of 2 percent, and while Shanghai .CSI300 trailed with just 0.2 percent, Europe then rose 1.3 percent and E-Mini futures for the S&P 500 ECc1 added 0.9 percent. .N
"We are seeing risk sentiment stabilising a bit," said Societe Generale (PA:SOGN) strategist Alvin Tan. "Firstly we had news that China was considering reducing tariffs on U.S. cars, then the Huawei CFO was released on bail and then Trump said he could intervene in the case if it helped secure a trade deal."
The euro EUR=EBS rose 0.4 percent on the day to $1.1365 after the news.
Having been repeatedly disappointed before, analysts were still careful not to get too optimistic. said the Huawei case had made it increasingly obvious that the trade war was about technology as much as anything else, and there were also reports that the United States would release new evidence this week on Chinese hacking and economic espionage.
Markets had also been jolted when Trump threatened to shut down the government over funding for a wall he has promised to build on the U.S. border with Mexico. VERY BRITISH COUP
The pound had fallen to 20-month lows overnight as lawmakers in May's Conservative party gathered enough support to trigger a no-confidence vote in her leadership.
But it bounced back 0.8 percent as a number of heavyweight colleagues backed May and traders started wagering that she would survive, isolating opponents who want a clean, sudden break from the EU. uncertainty over what will be a secret ballot on Wednesday evening capped gains, keeping the pound around $1.26 GBP=D3 , having shed 1.9 percent in the previous two sessions to a trough of $1.2483.
The dollar stayed at 97.411 on a basket of currencies .DXY while the euro climbed to $1.1353 EUR= on reports that Italy would scale down its budget deficit target to 2 percent.
That would be well below the previous target of 2.4 percent and likely to ease tensions the spending plans had created with the European Commission.
Italian government bonds also rallied, with two-year yields down 18 basis points on the day at 0.49 percent. IT2YT=RR GVD/EUR .
Investors were also digesting U.S consumer price data that showed unchanged headline inflation, reinforcing speculation of fewer rate increases by the Federal Reserve. markets still expect the Fed to tighten at its policy meeting next week, Trump said the central bank would be "foolish" to do so. on a more restrained Fed helped gold stay near a five-month peak around $1,244 XAU= an ounce.
Oil bounced after industry data showed a surprisingly large draw on stockpiles and amid talk that a recent OPEC-led supply cut could support prices in 2019. O/R
Brent futures LCOc1 added another 85 cents to $61.06, while U.S. crude CLc1 rose a full dollar to $52.66 a barrel.
Oil has also been supported this week by a drop in supply from Libya, which declared force majeure on exports from its largest field on Sunday after tribesmen and state security guards seized the facility.