* MSCI’s world equity index flat after erasing losses
* Trump impeachment talk adds to geopolitical risk
* U.S.-China trade optimism boosts Europe
* But investors see major deal in October unlikely
* Dollar flat, euro at more than 2-year lows
* Wall Street futures up 0.3%
* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh (Updates prices, adds sterling fall, euro zone inflation expectation)
By Tom Wilson
LONDON, Sept 27 (Reuters) - World shares erased losses on Friday, buoyed by a wave of optimism that U.S.-China trade tensions might be easing as markets largely brushed off concerns about possible impeachment moves against U.S. President Donald Trump.
MSCI’s world equity index, which tracks shares in 47 countries, reversed earlier losses and was trading flat by 1120 GMT. It was still heading towards its worst weekly performance since mid-August, though.
Europe’s STOXX 600 index fared better, adding 0.5% as London’s bourse outperformed on a weaker pound and hopes grew of progress towards resolving the trade war. Wall Street futures also suggested a bright start for U.S. markets, gaining around 0.3%.
Investors focused on a whistleblower report that said Trump abused his office in trying to solicit Ukraine’s interference in the 2020 U.S. election for his political benefit, and that the White House tried to “lock down” evidence about that conduct.
The report came after the speaker of the U.S. House of Representatives Nancy Pelosi this week launched an impeachment inquiry into Trump, who has denied wrongdoing.
However, chances of his being removed from office look slim given that the Republicans control the Senate, where any impeachment trial would be held.
“What we are waiting to see is how this might impact the U.S.-China trade negotiations,” said Hugh Gimber, global market strategist at J.P. Morgan Asset Management.
“It’s that combination this week of weakening economic data and rising political uncertainty that has caused some tricky periods in markets.”
Earlier in the day, Asia-Pacific shares outside Japan had been buffeted by the political worries in the United States and shed 0.3%.
The dollar index measuring it against a basket of currencies was up 0.1% near a three-week high of 99.146, and on track for its best week in a month.
Balancing worries over the ramifications of any possible impeachment of Trump was an apparent easing of trade tensions between Washington and Beijing.
The trade war has upset financial markets and disrupted global supply chains as the world’s two largest economies heap hundreds of billions of dollars in tariffs on each other’s products.
China’s top diplomat said on Thursday that China was willing to buy more U.S. products and that trade talks would yield results.
Those comments fuelled the positive mood after Trump on Wednesday praised the Chinese purchases, saying a trade deal could come sooner than people thought.
“Trade... remains the most important issue for markets, and the news that we have had over the last couple of weeks I would see as gestures of goodwill from both sides - trying to set up a more constructive negotiation in a couple of weeks’ time,” Gimber added.
European shares reacted well to those signals, also getting a boost from moves in currency markets. London stocks added 1%, with exporters buoyed by a weaker pound central bank policymaker hinted at a cut in UK interest rates.
Sterling was a other big loser in early London trading, weakening 0.3% after Bank of England policymakers Michael Saunders signalled a possible rate cut amid Brexit uncertainty and disappointing global growth.
Meanwhile the euro was pinned at its lowest level since May 2017 as a steady drip of negative economic data this week sapped investor demand for the single currency, further helping export-oriented European stocks.
A key market gauge of the euro zone’s inflation expectations fell to its lowest level since early July on Friday, reflecting growing concern that the European Central Bank’s stimulus will be unable to fuel price pressures.
Washington and China are preparing for another round of trade talks scheduled for Oct. 10 and 11, but investors voiced scepticism at prospects of a major breakthrough then.
“There is still a huge gulf,” said Eoin Murray, head of investment at Hermes Investment Management, adding that prospects for a deal had receded from earlier in the year.
“Around April, May time, the main sticking point was the enforcement mechanism - but we have retreated miles from that at this point.”
Tech remains a sticking point, with reports on Thursday that the United States is unlikely to allow American firms to supply China’s Huawei Technologies undermining hopes of a broad bilateral deal.
Underlining market sensitivity, European chipmakers Infineon and Siltronic both fell around 1.5%, mirroring losses for Asian chip-related shares Samsung Electronics and SK Hynix.
Major Huawei supplier Micron Technology had fallen 7% in after-hours trade after it forecast first-quarter profit below Wall Street targets.
In commodity markets, Brent crude futures fell $1, or 1.5%, to $61.74 a barrel, weighed down by slowing Chinese economic growth that dampens the demand outlook and a faster-than-expected recovery in Saudi output.
For Reuters Live Markets blog on European and UK stock markets, please click on: (Reporting by Tom Wilson; editing by John Stonestreet)