LONDON, April 9 (Reuters) - The British pound climbed to athree-week high and Italian government bond yields fell as riskappetite improved across the board after the Fed rolled out abroad $2.3 trillion effort to bolster local governments andsmall and mid-sized businesses.

Sterling GBP=D3 extended gains, rising 0.8%, to athree-week high of $1.2481 as the dollar fell broadly againstits rivals.

Italian government bond yields, already slightly down on theday, dropped even further on the news on improved risksentiment. The country's benchmark 10-year government bondyields were down 10 basis points at 1.56% IT10YT=RR a movematched by Italian debt across the curve.

Meanwhile, European stocks .STOXX were trading 1.8% higherand were poised for their best weekly performance since 2011.

The Fed said it would work through banks to offer 4-yearloans to companies of up to 10,000 employees and directly buythe bonds of states and more populous counties and cities tohelp them respond to the health crisis. urn:newsml:reuters.com:*:nL2N2BX0J1

(Reporting by Saikat Chatterjee and Abhinav Ramnarayan; Editingby Thyagaraju Adinarayan) ((saikat.chatterjee@thomsonreuters.com; +44-20-7542-1713;Reuters Messaging: saikat.chatterjee.reuters.com@reuters.net))