GLOBAL MARKETS-Stocks keep the faith, sterling gallops higher

* Asian, European shares inch higher on trade deal optimism

* Investors remain weary amid mixed messages from Trump

* Oil rally runs out of steam as OPEC meeting kicks off

* Pound romps high on hopes election will allow smooth Brexit

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Marc Jones and Karin Strohecker

LONDON, Dec 5 (Reuters) - Stocks gained amid trade war headlines on Thursday, while sterling rose to its highest in more than two years against the euro on hopes next week's UK election will lead to a smooth Brexit.

Belief a trade deal would be struck stemmed from a Bloomberg report on Wednesday that China and the U.S. were close to phase one of a deal and from U.S. President Donald Trump's remarks that talks were going "very well". Trump has said earlier a deal might have to wait until after U.S. elections in November 2020.

If no agreement is reached soon, the next important date is Dec. 15, when Washington is scheduled to impose more tariffs on Chinese goods.

"People are a bit exhausted of the pump and dump around the trade deal news flow," said Saxo Bank's head of FX strategy, John Hardy.

The pan-European STOXX 600 rose 0.4%, mainly driven by utilities, healthcare and real estate shares. France's CAC rose 0.7% while the trade-sensitive German blue-chip index was little changed.

Luxury stocks were in focus after a report that Gucci-owner Kering held "exploratory" talks about a potential deal with Italy's Moncler, though the latter said there were no concrete options on the table.

Futures were suggesting U.S. stock markets would open 0.3% higher, ready to extend the previous day's gains.

POUNDS SHINES

While the dollar softened against most major currencies for a fifth straight session, sterling rallied to touch a seven-month high against the dollar and a two-and-a-half-year high against the euro, after extending recent gains on growing expectations next week's general election will not result in a hung parliament.

"With only a week to go until the UK election, the Tory party still hold a sizeable lead of around 10 percentage points over Labour," MUFG analysts told clients in a note. "It has made market participants increasingly confident to price in a Tory majority and an end to the deadlock in parliament."

By 1250 GMT, sterling was up 0.2% against the greenback at $1.3129 and flat against the euro at 84.49 pence.

"It is getting quite aggressive here and shows people are pricing in a very smooth Brexit, but that also enhances any shock if there is a hung parliament," said Saxo Bank's Hardy.

In contrast to the upbeat tones for sterling, British fund manager M&G Investments suspended dealing in its flagship UK property fund, blaming Brexit uncertainty and weakness in retailing.

The yen weakened, ceding some of the previous day's gains as positive signs about the trade dispute hurt demand for safe-haven currencies. In a bid to revive growth, Japan's cabinet approved a $122 billion fiscal package on Thursday to support stalling expansion in the world's third-largest economy amid offshore risks and as policymakers look to sustain activity beyond the 2020 Tokyo Olympics.

The yield on benchmark 10-year Treasury notes stood at 1.7809%, clinging of the gains made the day before. Most European government yields nudged higher.

Oil prices extended their rally ahead of an OPEC meeting where members are expected to agree on deeper output cuts in an effort to prop up prices and prevent a glut next year. Brent traded at $63.55 a barrel and U.S. crude $58.65 a barrel.

(Reporting by Karin Strohecker and Marc Jones in London, additional reporting by Noah Sin in Hong Kong and Sujata Rao in London; editing by Larry King, William Maclean)