* Industrials lead Wall Street rally
* Canadian dollar at four-month high; Mexican peso gains
* Yields tick up as risk assets gain on U.S.-Canada pact
* Gold dips on increased risk appetite, U.S. rate outlook
* Brent hits highest since 2014 ahead of Iran sanctions
* GRAPHIC-World FX rates in 2018: tmsnrt.rs/2egbfVh (Adds Italian government bond trading volume details)
By Laila Kearney
NEW YORK, Oct 1 (Reuters) - A pact between the United States and Canada to rescue the trilateral North American Free Trade Agreement with Mexico drove up global stock markets and the Canadian dollar on Monday, while weighing on safe-haven assets.
The newly named United States-Mexico-Canada Agreement (USMCA) announced on Sunday preserves a $1.2 trillion open-trade zone that was on the brink of collapse after nearly a quarter century.
“It is good news not only for NAFTA and North America in general, but a lot of market participants are really viewing this as a positive for future negotiations, especially with China,” said Lindsey Bell, investment strategist at CFRA Research in New York.
In currencies, the British pound rose against the U.S. dollar after Bloomberg reported that the British government was proposing a compromise on the Irish border issue in Brexit talks.
The Dow Jones Industrial Average rose 192.9 points, or 0.73 percent, to 26,651.21, the S&P 500 gained 10.61 points, or 0.36 percent, to 2,924.59 and the Nasdaq Composite dropped 9.05 points, or 0.11 percent, to 8,037.30.
MSCI’s gauge of stocks across the globe gained 0.15 percent.
The Canadian dollar strengthened to a four-month high against the U.S. dollar and the Mexican peso hit its highest level in more than seven weeks after the new trade agreement.
USMCA is aimed at bringing more jobs into the United States, with Canada and Mexico accepting more restrictive commerce with the United States, their main export partner.
It also effectively maintains the current auto sector and largely spares Canada and Mexico from the prospect of U.S. tariffs on their vehicles, although it will make it harder for global auto makers to build cars cheaply in Mexico.
Industrial stocks, and more specifically auto and rail-related shares rose. Ford Motor Co gained 0.8 percent, while General Motors advanced 1.6 percent. Among railroads, Kansas City Southern rose 2.9 percent.
The industrial sector, sensitive to trade developments in recent months, was up 0.9 percent, its sharpest gain in five weeks.
The pan-European FTSEurofirst 300 index rose 0.22 percent. Italian stocks reversed earlier gains to close down 0.5 percent on renewed worries about Italy’s budget.
Italy’s deputy prime minister, Luigi Di Maio, on Monday accused European Union officials of deliberately upsetting financial markets with negative comments about the country’s budget plans.
Trading volume of Italian government bonds on Friday had reached its highest level for a single day since 2011 on Tradeweb’s European Government Bonds platform, the company said. Some 5.5 billion euros ($6.4 billion) were traded on the day, it said.
The euro on Monday was hit by worries about a rise in Italy’s fiscal deficit, dropping below $1.16.
Also casting a shadow on markets were two surveys on Sunday that showed growth in Chinese manufacturing sputtered in September as domestic and export demand softened.
MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.22 percent lower.
Following the trade deal, yields on U.S. government bond yields rose as traders sold the safe-haven debt for riskier assets.
“There is a pretty significant risk-on tone following the new NAFTA agreement,” said Mike Lorizio, senior fixed income trader at Manulife Asset Management in New York.
Gold also dipped on the increased appetite for riskier assets. Spot gold dropped 0.3 percent to $1,188.71 an ounce. U.S. gold futures fell 0.31 percent to $1,192.50 an ounce.
Oil futures jumped more than $2 a barrel, rising to levels not seen since November 2014, as U.S. sanctions on Iran loomed and the North American trade deal was seen as fostering growth.
Brent futures settled at $84.98 a barrel, up $2.25, or 2.7 percent. In post-settlement trade, the contract continued to strengthen, rising to $85.45 a barrel, the first trade above $85 since November 2014. U.S. light crude futures settled up $2.05 a barrel at $75.30, the highest level since November 2014.
Reporting by Laila Kearney Additional reporting by Abhinav Ramnarayan and Medha Singh, Kate Duguid, Jessica Resnick-Ault, Chuck Mikolajczak and Karen Brettell in New York and Arpan Varghese in Bengaluru; editing by Rosalba O'Brien and Leslie Adler