* U.S. optimism over fiscal deal boosts markets
* European shares climb 0.8 pct, U.S. stocks set to gain
* Euro gains vs dollar, dollar up vs yen
* Oil prices edge up, gold recovers
LONDON, Nov 29 (Reuters) - World equities hit a three-week high and commodities gained on Thursday as optimism grew that U.S. political leaders would eventually reach a deal to avoid a fiscal crisis which threatens to derail growth in the world's biggest economy.
U.S. stock index futures also pointed to further gains helped by data showing the economy grew faster than initially thought in the third quarter.
The "fiscal cliff" - automatic spending cuts and tax increases early in 2013 unless Congress agrees an alternative - is the biggest risk facing global markets in the final weeks of the year after a deal to help Greece was done earlier this week.
"We are moving towards a phase of gradual improvement thanks to the likely resolution of the 'fiscal cliff' issue in the U.S., a bottoming out of the Chinese economy and the stabilisation of the euro zone," said Giordano Lombardo, chief investment officer at Pioneer Investments.
Good demand at an Italian bond sale, where yields fell to their lowest level in two years, added to signs that the euro zone crisis had begun to ease.
The growing optimism spread across world share markets, sending the MSCI global equities index up 0.6 percent to 330.74 points, its highest level since Nov. 7.
In Europe the FTSE Eurofirst 300 index rose 0.8 percent with gains of between 0.7 and 1.0 percent posted by London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX.
However, traders said that share markets were likely to remain nervous until a deal was done in Washington.
"One minute the portents for a deal on the fiscal cliff are negative, the next minute they are positive. This is likely to be the pattern all the way up to the deadline on Jan. 1," said Mike Mason, a senior trader at Sucden Financial Private Clients.
"Equities are sure to remain volatile and trading subdued until there is any concrete outcome to these negotiations," Mason said.
U.S. Treasury Secretary Tim Geithner is due to meet House and Senate leaders from both parties on Thursday to keep up pressure for a deal with less than a month left to reach a compromise.
RISK FLOWS CHANGE
As investors returned to riskier assets, the other side of the coin was a retreat from safe-haven German government bonds, pushing benchmark 10-year debt yields up two basis points to 1.39 percent
The better tone allowed Italy to auction successfully six billion euros ($7.75 billion) of new 5- and 10- year debt, which was expected to complete its funding needs for the year. The yield on the 10-year bond was 4.45 percent, the lowest since November 2010.
Spain also announced it would sell some more bonds at an auction on Dec. 5, although it has completed raising all the money it needs for this year.
Italian and Spanish debt have benefited in recent months from the European Central Bank's promise to buy sovereign debt if countries ask for aid first. Although that has not happened yet, the prospect of a central bank backstop has made investors reluctant to sell and has pushed them back into those markets.
In the secondary market, 10-year Italian yields were down 6.8 basis points at 4.52 percent, having reached lows of 4.49 percent before the auction. Five-year Italian yields fell 2.8 bps to 3.25 percent.
The fall in Italian and Spanish yields helped to lift the euro against the dollar by 0.35 percent to $1.2997, with the hopes for a U.S. fiscal deal adding to support for the common currency.
The dollar, which had pulled back against the yen in a correction from a 7-1/2 month high, edged up 0.1 percent to about 82.10 yen.
Commodity markets also got some support from the U.S. fiscal deal hopes. Crude oil futures rose $1.07 to $87.56 a barrel, and Brent climbed $1.15 to $110.66 a barrel.
Spot gold was up 0.2 percent at $1,723.51 an ounce although this followed a 1.3 percent tumble on Wednesday, its biggest daily decline in nearly four weeks.
"Gold is being pulled higher on this prevailing optimism over the fiscal cliff," said Ross Norman, chief executive of bullion dealer Sharps Pixley.