GLOBAL MARKETS-European stocks gain on EU election relief and auto shares surge

* European indices all in the green, auto stocks motor
* Euro holds near $1.12 after pro-Europe parties win EU
election
* Trading volumes thin with U.S., UK closed for a holiday
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Tommy Wilkes
LONDON, May 27 (Reuters) - European shares rose on Monday as
investors snapped up automaker stocks following confirmation of
merger talks between Fiat Chrysler and Renault , and after
European parliamentary elections saw pro-Europe parties cling to
a majority.
The gains followed a stronger showing in Asian markets,
where shares rose but remained near 4-month lows. The MSCI world
equity index .MIWD00000PUS , which tracks shares in 47
countries, was ahead by 0.1%.
The pan-European STOXX 600 .STOXX added 0.4% with all
major European indices .GDAXI .FCHI in the black, although
trading volumes were thin with markets in the United States and
United Kingdom closed for market holidays.
Auto stocks .SXAP climbed 1.8% as Italian-American
carmaker Fiat Chrysler FCHA.MI confirmed it had made a
"transformative merger" proposal to French peer Renault
RENA.PA in a deal which would create the world's third-biggest
carmaker. Shares of both companies rallied. Markets were also buoyed as pro-European parties retained a
firm grip on the EU parliament, provisional results from the
bloc's elections showed, though eurosceptic opponents saw strong
gains. Investors had been worried about eurosceptic parties gaining
a 30% vote share - the level at which they could seriously
disrupt European governance and the region's ability to show
unity in addressing key concerns like a global trade war.
But while far-right, nationalist or anti-EU groups came out
on top in Italy, Britain, France and Poland, they failed to
alter dramatically the balance of pro-European power in the EU
assembly.
"The impression of a fragmented political system remains,
but perhaps when all is said and done, the message will be that
Brexit has reduced appetite to leave the EU," said Kit Juckes,
FX strategist at Societe Generale.
The euro initially rallied above $1.12 but by 0920 GMT the
single currency was struggling, down 0.1% at $1.1195 EUR=EBS .
The dollar index gained 0.1% .DXY in quiet trading.
"In the simple world of FX a possible crisis is averted,
leaving us with familiar issues. Europe needs more growth and
while EU leaders argue over who gets which top jobs, it needs
easier fiscal policy perhaps most of all," Juckes said.
European government bond markets were little moved with the
spread between the German 10-year bond yield DE10YT=RR ,
considered one of the world's safest assets, and the Italian
10-year government bond yield IT10YT=RR little moved after
initially narrowing. Spanish ES10YT=RR and Portuguese bond yields PT10YT=RR
hit record lows - a sign of investor confidence after the
election results.
Elsewhere, U.S. President Donald Trump's visit to Japan was
overshadowed by trade tensions. Trump pressed Japanese Prime
Minister Shinzo Abe to even out a trade imbalance with the
United States.
Escalating trade tensions between the United States and
China have rattled investors in recent weeks, pressuring stocks
lower just as concerns build about weakening momentum in the
world's largest economies.
The yen, often the currency of choice for nervous investors,
fell 0.2% against the dollar to 109.495 JPY=EBS but remained
close to four-month highs hit earlier in May as traders looked
for safety in the face of mounting trade-related woes.
China's yuan rose to a 1-1/2 week high against the U.S.
dollar on Monday, buoyed by a senior official's warning not to
bet against the Chinese currency. The pound held around $1.2703 GBP=D3 . Sterling had bounced
back from a near five-month trough of $1.2605 after British
Prime Minister Theresa May last week named a date for her to
step down - triggering a leadership contest during which
investors fear the risk of a no-deal Brexit will rise. GBP/
Oil prices mostly fell, extending losses from last week when
crude dropped the most this year. Concerns the Sino-U.S. trade
war could trigger a broad economic slowdown have sent this
year's oil rally into reverse, although OPEC's supply cuts
provided some support. O/R
Front-month Brent crude futures LCOc1 , the international
benchmark for oil prices, rose 0.1% to $68.80 per barrel while
U.S. West Texas Intermediate (WTI) crude futures CLc1 shed
0.5% to $58.33 per barrel.