World stock markets are in for their most modest annual gains for years in 2008 thanks to the global credit crunch and an evolving economic slowdown, Reuters polls showed on Monday.

With many major central banks, led by the U.S. Federal Reserve, now beginning to trim rates, the chances of a U.S. recession may have waned, but most analysts don't expect the kind of equity gains seen in recent years on major world exchanges.

Particularly upbeat prospects for Asian stocks outside of Japan could also be at risk, given the Chinese authorities' increased determination to rein in a boom in growth and the specter of higher inflation.

A poll of 130 stock market strategists and fund managers from Toronto to Tokyo found a near across-the-board downgrade of expectations for where major indexes will end 2008.

Equity markets remain torn between fears of recession and the hope of a positive resolution of diverse stress factors, said Gerhard Schwarz at Unicredit MIB.

Most of them also represent a fraction of the kind of annual gain to which investors have become accustomed in recent years.

Still, the number of analysts favoring defensive shares in the coming year outnumbered cyclicals by only a small margin, an indication of how much bullish sentiment remains amongst those who are invariably disposed to provide an optimistic view.

Twenty of 40 analysts said they preferred defensives, while 14 said cyclicals were their top picks. The remaining six who answered the question said both.

That comes despite clear evidence that fallout from the unwinding of risky loans to American borrowers and the capital markets that profited from them is ongoing.

Swiss banking giant UBS said on Monday it wrote off a further staggering $10 billion and obtained emergency capital injections from a Singapore government entity and an unnamed Middle East investor.

A slowdown in momentum indicators, negative earnings revisions, falling bond yields and unattractive relative valuations all suggest cyclicals should be underperforming defensive stocks, said Stefania Signorelli at JP Morgan.

While most downgrades to end-2008 forecasts were mild in percentage terms, some were notable for their size. Analysts took down their end-year Nikkei .N225 outlook on average to just 17,225, compared with 19,440 in the September poll.

Markets with the greatest room for gains appeared to be Hong Kong's Hang Seng .HSI and Taipei's Taiex indexes, despite stellar gains in recent years driven by booming Chinese growth that authorities now seem determined to rein in.

But other high-fliers may be tamed. Germany's DAX will eke out about a third of the annual gain next year it has seen in recent years. Unlike China, Europe's economy is slowing.

While many point out that average price to earnings ratios on indexes like the S&P 500 .SPX are not high by historical standards, the risk of a U.S. consumer retrenchment intensifies the longer the housing market unravels. That is a real risk.

The Fed is widely expected to deliver another quarter point interest rate cut to 4.25 percent on Tuesday, its third policy rate cut since the credit crunch began, to shore up growth and confidence despite the lingering threat of inflation.

Plenty, too, remain concerned about the dollar, which has plummeted this year to a record low against a basket of currencies, as well as oil prices, which nearly hit $100 a barrel in November but were trading around $88 on Monday.

That means investors may need to be nimble if they want to see the kind of returns a straight allocation to stocks may have yielded in past years.

(Reporting by Bangalore and London Polling Units and bureaus around the world, editing by Will Waterman)