By Richard Hubbard
LONDON (Reuters) - Signs of delay in expected Western military strikes on Syria ended a three-day sell off on world share markets on Thursday, but investors were on edge over whether any action would trigger turmoil across the Middle East.
European stocks led the charge higher, lifted by Vodafone shares surging on renewed talks with Verizon .
Emerging market currencies stabilised after a rout as central banks in India, Brazil and Indonesia stepped up efforts to stem capital outflows back into the dollar.
U.S. President Barack Obama has set out the case for a limited military strike but divisions in Britain and among U.S. lawmakers seem set to delay any imminent action, giving investors a reason to take a breather.
"The overall sentiment remains cautious, but the fact that military action against Syria doesn't look imminent any more is prompting a number of investors to bet on a rebound," said Guillaume Dumans, co-head of research firm 2Bremans.
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In the oil market, Brent crude edged back below $116 a barrel as it became clear an imminent strike by the West in response to last week's alleged chemical weapons attack was less likely, ending its strongest two-day gain since January 2012.
Traditional safe-haven gold eased 0.5 percent to around $1,410 an ounce after gaining 1.2 percent to hit a 3-1/2 month high in the previous session's flight to safety.
CALM
The calmer tone in equity markets emerged after energy shares on Wall Street gained on the back the rise in oil prices, spreading to Asia where MSCI's Asia-Pacific index, excluding Japan, rose 1 percent.
The MSCI world equity index, which tracks shares in 45 countries, was broadly unchanged early in the European day having lost two percent this week.
European shares made gains across the board as the anxiety over Syria eased, with sentiment helped by signs of a resolution to the political crisis in Italy which had threatened to spilt the coalition government.
The FTSE Eurofirst 300 index of top European was up 0.6 percent in early trade with Italy's main benchmark index also gaining 0.6 percent.
Italy plans to sell up to 6 billion euros of new five and 10 year bonds later, which will test investor sentiment. It will show whether the prospect of the Federal Reserve reducing U.S. stimulus will put pressure on peripheral euro zone bond yields.
World currency markets have stabilised, with the dollar rising against developed world currencies, while actions among some emerging market nations stemmed their losses against the greenback.
The dollar was up about 0.5 percent against the yen at 98.24 yen, and up a similar amount against a basket of major currencies.
Brazil raised its benchmark interest rate to a 16-month high of 9 percent on Wednesday, while in Indonesia the rupiah strengthened slightly after its central bank hiked its key lending rates.
The Indian rupee rebounded from a record low after its central bank moved to provide dollars directly to oil companies to give the currency some relief.
The rupee rose as high as 66.85 per dollar, up sharply from a record low of 68.85 per dollar hit on Wednesday when the currency posted its biggest single-day percentage fall since October 1995.
(Editing by Elizabeth Piper)