MORNING BID EUROPE-Breakthrough for Spain amid Socialist reshuffle?

* A look at the day ahead from European Economics and Politics Editor Mark John and EMEA markets editor Mike Dolan. The views expressed are their own.

LONDON, Sept 29 (Reuters) - Is there finally some chance of a breakthrough in Spain's political stalemate? After nine months without a government, and the prospect of a third national election looming, nearly half the leadership of the country's Socialist party has resigned en masse, a manoeuvre aimed at unseating current chief Pedro Sanchez. He has been largely responsible in thwarting attempts to form a coalition government under the centre-right People's Party of outgoing PM Mariano Rajoy, but now it seems even his allies are saying it is time to find a solution. The limbo is starting to worry investors, which in turn could dent the pretty impressive recovery of the Spanish economy so far. The dissenters are now in a position to force the complete dissolution of the party leadership, meaning a new party leader could be elected in just a few weeks' time.

At a rally in Florence tonight, Italy's Matteo Renzi formally begins his two-month campaign to persuade sceptical voters to back his wide-ranging constitutional reforms in a referendum in December. A major challenge is his widespread personal unpopularity, which might go some way to explaining why his welfare minister has announced a 6-billion-euro top-up to the state pension fund that will allow people to retire earlier - going back on an existing pension reform passed in 2012.

After staunchly defending his negative interest rate and asset-buying policies in front of German lawmakers yesterday, ECB chief Mario Draghi will meet Angela Merkel herself this morning. No news conference is planned, so details of what was said may be thin on the ground. Aside from monetary policy, the other big issue of the day is what to do with ailing Deutsche Bank - in the light of persisting but officially denied speculation that Berlin is working on a rescue plan for the lender should it ask for state aid.

MARKETS AT 0655 GMT Given how low expectations for a deal had been, the surprise OPEC agreement to cut production next year by between half a million barrels and a million barrels a day has been a bit of a bolt from the blue in world markets. Brent crude prices jumped 5 percent last night on the news of the deal to their highest in a couple of weeks, even though they are struggling this morning to stay above $49 a barrel. Even (Taiwan OTC: 6436.TWO - news) though scepticism about the lack of detail about just who will cut what has limited market gains, back-of-the-envelope calculations by Goldman Sachs (NYSE: GS-PB - news) say strict implementation could add between $7-$10 to crude prices next year. Underlining its doubts about the deal, however, Goldman stuck with its existing 2016/2017 forecasts. On the other hand, a sustained boost to the oil price has big implications across world markets. For bond markets, already edgy about the beginning of the end of central bank stimulus, a potential oil-fuelled inflation fillip won't help the mood. Ten-year U.S. Treasury yields are up about 3 basis points since the OPEC news and the dollar index is slightly higher too, with the dollar/yen spot rate outperforming with a 1-yen jump as high as 101.74. The Nikkei 225 caught the mood as a result and jumped 1.4 percent. Euro/dollar bucked a firmer dollar trend to nudge higher as German Bund yields jumped, with the Bund future dropping 43 ticks at the opening. Energy-heavy stock markets and commodity-dependent emerging markets have seen broad gains. Asia bourses were higher and European stock futures were up more than 1 percent. MSCI (Frankfurt: 3HM.F - news) 's emerging markets equities index is up about 0.6 percent, while Norway's crude-driven crown hit a 15-month high against its Swedish neighbour.

Euro zone government bond yields rose across the board on Thursday, with Finland's 10-year yield pushed out of negative territory by a surge in oil prices. Two-year bond yields in Germany also well above record lows hit this week as risk appetite in world markets stages a comeback. Italy sells a new 5-year bond today, there's also some focus on France where markets may get a first estimate of 2017 supply. Germany releases its first reading of September inflation data.

Upcoming events/data/themes for market reports on Thursday:

* Fed Chair Janet Yellen participates in Kansas City Fed conference

* Spain Sept flash inflation

* Spain Sept retail sales

* German Sept unemployment/preliminary CPI

* UK Aug BoE consumer credit

* UK Aug mortgage approvals

* Euro zone Sept business/economic/industrial sentiment

* U.S. final Q2 GDP

* U.S. Aug pending home sales

* S. Korea Aug industrial output

* Romania/Colombia rate decisions

* Japan sells 2-year bonds

* U.S. sells 7-year bonds (Editing by Louise Ireland)