World stocks gain as Brexit nerves settle

By Patrick Graham

LONDON (Reuters) - European and Asian stock markets built on a recovery from the aftermath of last week's Brexit vote on Wednesday as investors wagered central banks would ultimately ride to the rescue with more stimulus.

UK and European banks, a centre of concern since Britain shocked global financial markets on Friday by voting to leave the European Union, were broadly higher, extending a recovery from two days of trading which knocked almost 40 percent off shares in Barclays and RBS.

Sterling, the other big victim on Friday and Monday, rose around 0.6 percent against the dollar to recover a full 3 cents of Friday's 18-cent fall to 31-year lows.

Stock markets in Frankfurt, Paris and London all gained more than 2 percent in morning trade while the pan-European index of major banks was up 1.6 percent. Wall Street was also set to open higher.

At the heart of the recovery are expectations that the world's major central banks will go easier on monetary policy over the next six months in anticipation of another hit to global growth from Europe.

Traders said there was much talk, particularly outside the UK, of ways in which Britain could renege on the results of the referendum to which no politician has given credence.

But either way markets face a prolonged period in limbo while a new UK prime minister is selected and officials get to grip with the possible scenarios for Britain's departure.

"While the initial panic from Brexit appears to have eased, a huge amount of uncertainty remains which could continue to weigh on sentiment for a while," said Craig Erlam from online brokerage Oanda.

Britain's 27 partners meet without the UK on Wednesday to discuss how to respond to a Brexit and are expected to launch a period of reflection, culminating in a set of EU reform proposals to be unveiled by March of next year.

"Expect lots of mood swings ahead as the prevailing mood changes but there was definitely an air that full Brexit wasn't necessarily a done deal yesterday," Deutsche Bank analyst Jim Reid said in a morning note.

Better signals from the U.S. economy on Tuesday were also playing into the price action.

But the first Federal Reserve policymaker to comment since the vote, Governor Jerome Powell, said it had shifted global risks "to the downside", reinforcing expectations the Fed will not hike U.S. rates this year and could even cut.

Japanese Prime Minister Shinzo Abe also urged the Bank of Japan to provide ample funds to markets.

In commodity markets, gold was firmer around $1,321.00 an ounce, off a low of $1,305.23 touched Tuesday.

Oil prices gained as a looming strike by Norwegian oil and gas field workers threatened to cut output. There were also reports oil producers and refiners in crisis-struck Venezuela were struggling to keep output up.

U.S. crude oil futures were up 35 cents at $48.20, while Brent crude rose 22 cents to $48.80.

(Additional reporting by Wayne Cole in Sydney; Editing by Jeremy Gaunt)