* World shares rise as U.S. votes
* Dollar, government bonds drop as risk appetite takes over
* Oil up nearly 3% as recovery continues
* Investors bracing for volatility if outcome contested
* Graphic: 2020 asset performance http://tmsnrt.rs/2yaDPgn
* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh
By Huw Jones
LONDON, Nov 3 (Reuters) - Wall Street was set to open higher on Tuesday as investors bet on a clear win for Joe Biden in the most polarised U.S. presidential election in recent times.
U.S. President Donald Trump and Democratic rival Biden made a last-minute push for votes in battleground states on Monday. Their campaigns were wary of possible legal disputes that could delay a clear outcome, but a wave of risk appetite swept through markets. markets in the last 48 hours have become a bit more convinced of a Biden victory without the messy risk of weeks of uncertainty and turmoil," said Derek Halpenny, head of research at MUFG.
Wall Street futures were up before New York trading began, buoyed by gains in Asia and Europe and by hopes that a Biden win would translate into more stimulus programs.
Dow e-minis 1YMcv1 were up 1.5%, S&P 500 e-minis EScv1 rose 1.1% and Nasdaq 100 e-minis NQcv1 gained 0.54%.
The tail end of the earnings season and the release of U.S. data on durable goods and factory orders were unlikely to change investors' mood, analysts said.
The pan-European STOXX 600 index .STOXX rose 1.6% in a second day of gains, having slumped to a five-month low last week as many of the region's top economies were forced back into coronavirus lockdowns. .EU
Growth-sensitive cyclical sectors such as oil and gas .SXEP , mining .SXPP and banks .SX7P once again led the rally - all rising 2.4% to 2.8%.
Markets noted an update from Britain and the European Union on their trade talks that indicated there is still no agreement on longstanding sticking points like fishing rights.
"Markets are still expecting a deal, no doubt it will be last minute, to the wire," Halpenny said.
BLUE WAVE WATCHING
A shock Trump win, a contested result, or just a divided outcome could all trigger market corrections, analysts said.
"Control of the Senate is crucial for any 'blue wave' scenario to materialise, otherwise divided government continues and fiscal stimulus expectations will need to be scaled back," said Alvin Tan, Asia forex strategist at RBC Capital Markets.
For a story on how global markets have fared over the last four years click said that while the mood was more upbeat on Tuesday, it remained febrile as European countries introduced tougher lockdowns to fight a pandemic that was set to hit the economy further.
Australian's central bank became the latest to take action to shore up the coronavirus-hit economy, trimming interest rates to near zero on Tuesday and ramping up its bond-buying plans.
Investors are also waiting on Federal Reserve and Bank of England meetings this week, which are also expected to bring more support.
"The problem with markets is that they are very binary. One day everything is hunky dory and the next day it's the depths of despair, and so you have to tread that tightrope between the two that creates volatility," said Michael Hewson, chief market analyst at CMC Markets.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS had added 1.4% overnight. The gauge is less than 1% shy of a two-and-a-half-year high struck in mid-October and up over 5% this year, driven by a 37% rebound from China's markets since March.
Currency markets also seemed to be tilting towards a victory for Biden. The dollar was down almost 0.5% against a basket of the world's other top currencies =USD at 93.610 after hitting a month-high on Monday. /FRX
Analysts believe a Biden win would weaken the dollar, because the former vice-president is expected to spend big on stimulus and to take a freer approach to trade, boosting other currencies at the dollar's expense and potentially pushing up bond yields.
The euro EUR= extended gains through the morning to stand 0.56% higher at $1.1735. Russia's rouble RUB= , which has been one of the currencies hit hardest by the prospects of a Biden win, also saw a strong rebound. .RU
Strategists at Blackrock (NYSE:BLK) Investment Institute said polls were suggesting a greater likelihood of a Democratic sweep in the election.
"We are starting to incorporate themes we believe would outperform in that event, moving toward a more pro-risk stance overall despite last week's market pullback," the strategists said in a report.
South Korea's main index .KSII advanced 1.7% and Hong Kong's index .HSI rose 2.2%. The MSCI China index hit a 23-year high as Chinese factory activity expanded the fastest in a decade. safe-haven yen JPY= was steady at 104.76 yen per dollar. FRX/ Japanese markets were closed for a holiday.
Oil prices were rising after two weeks of weakness, with Brent futures LCOc1 up nearly 3% at $40 a barrel and U.S. WTI up 2.9% at $37.88. O/R
Gold XAU= rose 0.23% to $1,899 an ounce. Benchmark U.S. and European bond market yields, which are a proxy for governments' borrowing costs, were also higher.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World stocks market cap rise over last four years
https://tmsnrt.rs/2TL19hh Major world stock indexes over the last four years
https://tmsnrt.rs/326YYsP Key emerging currencies being split by U.S. election
https://tmsnrt.rs/326Toa7
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