GLOBAL MARKETS-Euro, pound rally on Brexit concession; stocks pare gains

* Italian 10-yr yield hits 4.5-yr high of 3.783

* Euro recovers after falling to 10-day low

* World stock index set for fourth week of losses

* Oil up but posts weekly loss on stock build, trade tensions

By Rodrigo Campos

NEW YORK, Oct 19 (Reuters) - Stocks erased gains on Friday, with a global index struggling to avoid a fourth consecutive weekly loss, while the euro and sterling rallied against the dollar after a report said the UK is ready to drop a key Brexit demand.

The Mexican peso touched a five-week low versus the greenback after ratings agency Fitch revised Pemex's credit rating outlook to negative citing uncertainty over the Mexican national oil company's future business strategy. earnings boosted shares early on Wall Street but concerns over economic growth in China and Europe lingered, dragging indexes lower in afternoon trade.

"There a lot of cross-currents right now, with Italy, housing weakness, interest rates..." said Michael Antonelli, managing director of institutional sales trading at Robert W. Baird in Milwaukee.

The pan-European STOXX 600 index .STOXX lost 0.12 percent and MSCI's gauge of stocks across the globe .MIWD00000PUS shed 0.12 percent. Dow Jones Industrial Average .DJI rose 36.87 points, or 0.15 percent, to 25,416.32, the S&P 500 .SPX lost 2.72 points, or 0.10 percent, to 2,766.06 and the Nasdaq Composite .IXIC dropped 39.28 points, or 0.52 percent, to 7,445.86. market stocks .MSCIEF were flat. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS closed 0.09 percent higher.

In currencies, the British pound and the euro rose after Bloomberg News reported that British Prime Minister Theresa May is ready to drop a key Brexit demand in order to make a deal for Britain to leave the European Union. EU negotiator Michel Barnier said a Brexit deal was 90 percent done although hurdles remained. GBP= was last trading at $1.3065, up 0.37 percent on the day. The euro EUR= rose 0.49 percent to $1.1508.

The dollar index .DXY fell 0.2 percent.

The Mexican peso lost 0.66 percent versus the U.S. dollar at 19.29. It touched a low of 19.34 per dollar, the weakest in five weeks.

The Japanese yen weakened 0.33 percent versus the greenback at 112.56 per dollar.

Italian assets were sold heavily earlier in the session a day after the European Union called Rome's draft budget an "unprecedented" breach of EU fiscal rules. The selling subsided after European Economics Commissioner Pierre Moscovici said he wanted to reduce budget tensions with Italy. closely watched Italian/German bond yield spread touched a 5-1/2 year high of 338.4 basis points before tightening to 306.8 bps. DE10IT10=RR

Italy's benchmark 10-year bond yield IT10YT=RR rose as high as 3.783 percent, the highest since February 2014. It last traded at 3.569 percent.

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Oil prices rose on signs of surging demand in China, but the market remained concerned over rising U.S. inventories and trade wars that could curb economic activity. crude CLc1 rose 0.77 percent to $69.18 per barrel and Brent LCOc1 was last at $79.81, up 0.66 percent on the day.

The benchmark U.S. Treasury yield traded within the previous session's range. The U.S 10-year note US10YT=RR last fell 6/32 in price to yield 3.1958 percent, from 3.175 percent late on Thursday. GRAPHIC-Global assets in 2018

http://tmsnrt.rs/2jvdmXl GRAPHIC-World FX rates in 2018

http://tmsnrt.rs/2egbfVh GRAPHIC-Emerging markets in 2018

http://tmsnrt.rs/2ihRugV GRAPHIC-MSCI All Country World Index Market Cap

http://tmsnrt.rs/2EmTD6j

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