NEW YORK (Reuters) - An index of global stock markets rallied to a 21-month high on Monday, boosted by growing hopes for a U.S.-China trade deal and the view that the U.S. Federal Reserve this week will deliver its third interest rate cut for 2019.

FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., October 28, 2019. REUTERS/Brendan McDermid

U.S. Treasury yields rose after the European Union agreed to a three-month flexible delay of Britain’s departure. Improved risk sentiment also sapped demand for the safe-haven U.S. dollar, the Japanese yen and gold.

MSCI’s All Country World Index, which tracks shares across 47 countries, was up 0.44% to its highest intraday level since Feb. 2, 2018.

U.S. and Chinese officials are “close to finalizing” parts of a trade agreement after high-level telephone discussions on Friday, the U.S. Trade Representative’s office and China’s Commerce Ministry said. The USTR provided no details on areas of progress.

U.S. President Donald Trump has said he hopes to sign the deal with China’s President Xi Jinping next month at a summit in Chile.

“It just seems like the things that would disrupt the rally – tightening monetary policy (are) off the table. Some kind of big battle with the Chinese seems to be off the table, some kind of political upheaval seems be off the table,” said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco.

“All of that means the line of least resistance is higher.”

Strong results from U.S. companies have boosted risk sentiment, and investors are hopeful the Fed will cut interest rates at its meeting this week.

On Wall Street, the S&P 500 closed at a record high. Microsoft Corp MSFT.O shares boosted all three main indexes, after the tech giant beat Amazon.com Inc AMZN.O for the Pentagon's $10 billion cloud computing contract.

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The Dow Jones Industrial Average .DJI rose 132.66 points, or 0.49%, to close at 27,090.72, the S&P 500 .SPX gained 16.87 points, or 0.56%, to finish at 3,039.42 and the Nasdaq Composite .IXIC added 82.87 points, or 1.01%, to end at 8,325.99.

The pan-European STOXX 600 index .STOXX rose 0.25% to close at its highest since January 2018, helped by trade-exposed auto and mining stocks.

In currency markets, the U.S. dollar slipped as trade deal optimism reduced demand for safe haven currencies.

“Positive trade headlines continue to support our view that trade tensions are easing,” said Win Thin, global head of FX strategy at Brown Brothers Harriman.

The dollar index .DXY, which measures the greenback against a basket of six major currencies was 0.09% lower on the day.

Sterling GBP= rose 0.25% after British lawmakers rejected Prime Minister Boris Johnson's bid to end the political paralysis around Brexit with a Dec. 12 election.

The vote took place after the European Union agreed to a three-month flexible Brexit delay.

The benchmark 10-year U.S. Treasury yield was last up 4.5 basis points to 1.8455%.

Oil prices eased after four days of gains as worries about weak Chinese industrial data offset hopes oil demand will rise on a Sino-American trade deal.

Brent crude settled down 45 cents, or 0.7% at $61.57 a barrel, while U.S. West Texas Intermediate crude settled 85 cents, or 1.5%, lower at $55.81.

Gold slipped as trade hopes limited gains after the precious metal jumped 1% in the previous session. Spot gold XAU= was down 0.77% at $1,492.6949 per ounce.